ADP provides back-office services such as payroll processing, tax and benefits administration, and human-resource services. The company has a great competitive moat; once a client is onboard, switching costs are huge, so client retention rates are upward of 90%.
In the past five years, ADP has grown EPS 12% a year to $2.52 in fiscal 2011 (ended June 30). The balance sheet is also solid. ADP sits on $1.8 billion of cash and has virtually no debt, enabling it to pay out 56% of earnings as dividends. In addition, dividends have improved for 36 consecutive years. The last increase was in November 2010, when ADP raised payments 6% to a $1.44 annual rate, so another hike is likely before year-end. ADP trades at a P/E ratio of 19 and yields 2.9%.Risks to consider: Exxon's earnings are cyclical, while Johnson & Johnson has been hurt by product recalls. However, all of these stocks have stockpiles of cash, low debt and superior records of dividend growth. Action to take --> All four of these companies are exceptionally creditworthy, which means they can meet their financial obligations with no trouble. They are also the only four names still standing in Standard & Poor's select list of "AAA" ratings. My top pick is Microsoft because of its consistent high EPS growth and low P/E ratio. But any of these four names are attractive, based on their combination of safety and high yields. Disclosure: Neither L. Springer nor StreetAuthority, LLC hold positions in any securities mentioned in this article. Also see:
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