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3/03/2013

Automatic Data Processing: A Dividend Champion For The Dividend Yield Passive Income Portfolio


And the buying process goes on. Last Friday I bought 25 shares of the business services stock Automatic Data Processing (ADP). The purchase is the first one with a yield of less than 3%. As you might see, high quality stocks getting rare, especially when you look for high yielding growth picks with cheap fundamentals.

What Automatic Data Processing Makes


ADP provide business outsourcing solutions. The company operates in three segments: Employer Services, Professional Employer Organization (PEO) Services, and Dealer Services. The Employer Services segment offers a range of human resource (HR) information, payroll processing, time and labor management, and tax and benefits administration solutions and services, including traditional and Web-based outsourcing solutions

How Automatic Data Processing Affects The Dividend Yield Portfolio


The total purchase amount was $1,546.25 and will give me roughly $40 in additional annual dividends for my Dividend Yield Passive Income Portfolio (DYPI). The full income, estimated on a twelve-trailing months basis, amounts to $1,176.17.

The income results from 22 stock holdings, each worth around $1,000 – $2,000. The total purchase amount was $31,514.50. Now they have a market value of $33,298.70. The remaining cash of $68,656 is still available for white elephants. 

I plan to hunt for real bargains, which are very rare for the time being. I also believe that I don’t have big bargains in the DYPI-Portfolio because of the market situation. We are in a time of monetary easing. As a result, financial assets like stocks, gold or even bonds have a solid to fair valuation. Maybe they are overvalued if we include all the downside risks from this dangerous quantitative federal policy. I cannot tell you how it will end but it should have definitely a consequence for the currency.

The DYPI-Portfolio was funded virtual with $100k on October 03, 2012 and made a return of 1.63% since the date of funding. The performance is so low compared to the market because of the huge cash amount and the slow purchase process (I invest each week only 1-2% of the cash). Roughly 68% of the fund is not invested.  

I ever told that this strategy of buying each week a stock for 1-2% of its portfolio worth will lose performance if the market goes strong up but my thoughts with this asset vehicle are different.

Dividend Yield Passive Income Portfolio Overview (Click to enlarge)

Latest Portfolio Transactions (Click to enlarge)

I don’t like to show you how you can make fast money and get quick rich. I only like to show you how long-term dividend growth investing works.

Over the recent decade, I made a six-figure gross gain with stock trading, mainly with dividend stocks - Dividends were responsible for nearly one-third of my overall performance. Now, I live off dividends.

What you need is a long-investment horizon and patience with your philosophy. Values will not born overnight. They will be created over years and decades. And the biggest value creators are those stocks with a trustful and loyal management and a solid growing environment. 

The market conditions are very important if you want to realize a return of 5% or 15%. In some industries, it is very hard to make money as a small player. I think about highly regulated industries like the telecom carriers or even utilities. I you invest your money in those stocks you can have the best skipper but if the sea is rough and windy, you have a tough fight for your return.

The Total Return Of The Dividend Yield Passive Income Portfolio


The stock holdings of the portfolio alone generated a return of 4.63%. That’s in line with the broad market gain especially when we consider the lower volatility and higher dividends.

Dividend Yield Passive Income Portoflio Performance (Click to enlarge)

What Current Yields Are Generated By The Portfolio?


The average yield of the portfolio is now 2.53% because of the small capital gain. The yield on cost, dividends calculated on purchase amounts, is 3.71%.

I believe that its possible to boost the dividend income to a total value of 3,000 – 4,000 by the end of the year 2013. With $68k in cash I must buy stocks around the 3% percent mark.

A Hard Fight For Stock Bargains With Good Dividend Yields


Good investments getting rare. Last week I thought about a purchase of Coca Cola because of the high quality of the stock but I decided to buy General Electric because of the higher yield. This was a false choice. 

One day, I must put KO shares into the portfolio - I hope for a better yield. ADP was the first buy with a yield of less than 3% dividend yield. But I hope all companies will increase their payments over the next twelve months. This would it make easier for me to realize the income aim.

Why Automatic Data Processing?


Automatic Data Processing is valuated with a P/E of 22.10 and pays a yield of 2.82%. The stock is a low beta stock (0.66 beta ratio) and has a solid, low cyclic and well diversified business model. 85% of the annual sales come from Americans nations and 12% from Europe. ADP is a Dividend Champion and hiked dividend payments over 38 consecutive years.

ADP - Automatic Data Processing - Earnings and Dividends

Interesting is the low debt situation. As of Q2/2013, ADP had no significant long-term debt but $1.4 billion in cash. The market capitalization was $30 billion. With this in mind, the EV/EBITDA is at 11.7. Analysts predicting a growth in earnings for the next years close to the double-digit mark. For me was this the reason to pull the trigger.

Here is the portfolio overview from the income perspective:

Sym
Name
P/E Ratio
Dividend Yield

Buy
# Shrs
Income
Value
TRI
Thomson Reuters C
12.27
4.2

28.90
50
$64.25
$1,524.00
LMT
Lockheed Martin C
10.53
4.89

92.72
20
$86.00
$1,763.40
INTC
Intel Corporation
9.8
4.24

21.27
50
$44.25
$1,051.50
MCD
McDonald's Corpor
17.89
3.07

87.33
15
$44.10
$1,435.20
WU
Western Union Com
8.3
3.03

11.95
100
$42.50
$1,426.00
PM
Philip Morris Int
17.75
3.57

85.42
20
$65.58
$1,828.80
JNJ
Johnson & Johnson
19.72
3.21

69.19
20
$48.80
$1,534.00
MO
Altria Group Inc
16.29
5.07

33.48
40
$68.00
$1,339.60
SYY
Sysco Corporation
17.67
3.39

31.65
40
$43.60
$1,299.20
DRI
Darden Restaurant
13.22
4.17

46.66
30
$57.90
$1,385.40
CA
CA Inc.
12.46
4.08

21.86
50
$50.00
$1,221.00
PG
Procter & Gamble
17.29
2.95

68.72
25
$56.20
$1,912.25
KRFT
Kraft Foods Group
17.63
4.12

44.41
40
$80.00
$1,942.80
MAT
Mattel Inc.
18.35
3.17

36.45
40
$51.60
$1,620.00
PEP
Pepsico Inc. Com
19.31
2.84

70.88
20
$43.00
$1,518.60
KMB
Kimberly-Clark Co
21.33
3.14

86.82
15
$44.40
$1,414.50
COP
ConocoPhillips Co
8.62
4.53

61.06
20
$52.80
$1,165.60
GIS
General Mills In
17.07
2.8

42.13
30
$38.85
$1,391.70
UL
Unilever PLC Comm
19.98
3.15

39.65
35
$43.89
$1,401.75
NSRGY
NESTLE SA REG SHR
19.67
3.01

68.69
30
$63.15
$2,074.80
GE
General Electric
17.97
3.1

23.39
65
$46.80
$1,507.35
ADP
Automatic Data Pr
21.4
2.64

61.65
25
$40.50
$1,541.25
















$1,176.17
$33,298.70
















Average Yield
3.53%
















Yield On Cost
3.71%

2 comments:

  1. The automatic data processing accepts raw data in the form of input and give out information as output. Data processing companies give you the opportunity to concentrate more on the other productive activities while they handle the data processing work completely alone.

    ReplyDelete
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    ReplyDelete

Do you have any questions or notes to this article?
Please let me know your thoughts and we will discuss it.

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