Not too bad considering that ADP shares did not have to go up to achieve this return. That's a $9,682 profit or 36.3% cash-on-cash if this 'best case scenario' plays out. You will have $36,322 from the stock sale and yield for your $26,640 net cash outlay. ![]() You will have no further option obligations.You will have collected $1,322 in dividends (at the current rate).Your $35 puts will expire worthless (a good thing for you as a seller).If ADP shares are $35 or above (as they already are Wednesday): I expect ADP shares to climb by year end but in the current equity environment here's my conservative combination play with great total return potential even if the stock does nothing through next January. Their 10-year median multiple has been 27x and the past five-year average was 24x.Īt Wednesday's close of $36.84, ADP is offered at about 15 times calendar year 2009 estimates. Historically, ADP shares have commanded premium P/Es. They show them in the 100 th percentile for 'stock price stability' and in the 95 th percentile for 'earnings predictability'. Value Line gives ADP its highest safety rating, an 'A++' for financial strength. It's also higher than ever before on ADP shares (excepting at last October's nadir). The current yield of 3.58% is better than that on a 10-year Treasury and almost all bank CDs. The dividend has been raised in each of the past 17 years. Only $16.9 million of that comes due in the next five years. These are low volatility shares and the balance sheet is fabulous with treasury cash of over $1.37 billion versus total debt of just $51.2 million as of December 31, 2008. Even so, analysts now are looking for $2.56 for FY 2010. As payroll processors they are being restrained by the nation's worsening unemployment numbers. They also provide Human Resource solutions and various accounting, inventory and leasing services to smaller companies.ĮPS have risen in 13 of the past 16 fiscal years and the current year is almost certain to add to that total with consensus estimates running about $2.40 versus FY 2008's $2.20 figure. Domestic revenues account for about 82% of their approximately $9 billion in expected sales for FY 2009 (ends June 30, 2009). 9, 2008)ĭividend = $0.33 quarterly = 3.58% current yieldĪDP is America's largest payroll and employee tax filing processor with over 585,000 accounts. ![]() With Wednesday's dour market mood and the lack of decent yields, what's an investor to do for attractive total return? I think it's worth ferreting out high quality, good-yielding stocks and then writing covered calls and naked puts to obtain a wide range of results that can provide exactly that.Īutomatic Data Processing ( NYSE: ADP) Feb.
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