This S&P 500 Dividend Stock Is Down 70% and It's Now a Once-in-a-Cycle Buy

Key Points

Most dividend stocks have been out of favor for months now.

The rise of artificial intelligence is also weighing on companies that rely on a strong, growing labor pool.

Nothing lasts forever, however, and not everything is always as it seems.

• 10 stocks we like better than Automatic Data Processing ›

Growth stocks may be roaring again, but they're largely still doing so at the expanse of value stocks and dividend stocks.

As veteran investors can attest, however, this ebb and flow is reliably cyclical. The current leaders will eventually become the laggards, and vice versa. Of course, the time to buy anything is when it's out of favor, particularly if a pullback has pumped up a dividend stock's yield to a level you'd love to lock in.

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With that as the backdrop, income-minded investors looking to put some idle cash to work would be wise to consider stepping into a stake in Automatic Data Processing (NASDAQ: ADP) while it's down nearly 70% from its mid-2025 peak.

Rough patch

You know the company, although you probably know it better by its more familiar name "ADP" -- the payroll processer that serves 1 out of every 6 United States workers. It's not just a paycheck middleman, though. Benefits administration, time clock management, and personnel recruitment are all in its wheelhouse.

Still, the stock's been shellacked since early June last year. What gives?

A combination of factors is at work here. One of them is a few too many disappointing jobs reports; Automatic Data Processing responded with disappointing revenue guidance.

Perhaps weighing most on investors' minds, however, is the advent of artificial intelligence (AI) and what it may mean for ADP's business. Not only will AI allow enterprises to function with fewer employees, but AI itself could conceivably replace Automatic Data Processing as a service provider. And it's not a wild concern.

It'll be fine

As time marches on, however, the world can't help but notice that AI isn't necessarily suited to handle every task.

Oh, it's great at doing the ambiguous stuff like sifting through a massive amount of digital data and turning it into actionable insights. It's not consistently precise, though. Artificial intelligence doesn't always truly understand what it's being asked to do or how to do it -- because it doesn't know what it doesn't know -- and it certainly doesn't understand context or appreciate the need for perfection. And if there's one area where anything less than perfection is unacceptable, it's employee payroll.

That's the long way of saying ADP is better-shielded than it may seem.

Underscoring this argument is January's release of the company's fiscal second-quarter numbers. Revenue grew 6% year over year to $5.4 billion, topping estimates. Per-share earnings of $2.62 also beat estimates of $2.57, improving the year-earlier comparison of $2.35 by 11%. Best of all, Automatic Data Processing raised the low end of its full-year sales and profit guidance for the fiscal year ending in June. It's now looking for top-line growth of 6% driving earnings growth of 9% to 10%. Not bad.

Sooner than later

In light of the stock's continued weakness in the meantime, clearly the market isn't convinced the foreseeable future is firmly bullish. Don't sweat it too much. Analysts expect the company to meet its own guidance for the current fiscal year, and then repeat those growth numbers next year.

Either way, you can plug into ADP's dividend at a healthy, forward-looking yield of 3.3%. That's based on a dividend, by the way, that's now been raised for 51 consecutive years.

Should you buy stock in Automatic Data Processing right now?

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James Brumley has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.