Linked here is a PDF copy of my analysis of Paychex, Inc. (PAYX) (alt.1, alt.2). Last week I initiated a position in this stock. Below are some highlights from the above linked analysis:
Company Description: Paychex, Inc. provides payroll and integrated human resource and employee benefits outsourcing solutions for small- to medium-sized businesses in the United States.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description: 1.) Avg. High Yield Price, 2.) 20-Year DCF Price, 3.) Avg. P/E Price and 4.) Graham Number. PAYX is trading at a discount to three of the four valuations above. If you average the middle two valuations, it is trading at a 17.1% discount. PAYX gets a Star for being fair valued.
Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description: 1.) Rolling 4-yr Div. > 15%, 2.) Dividend Growth Rate, 3.) Years of Div. Growth, 4.) 1-Yr. > 5-Yr Growth and 5.) Payout 15% of avg. PAYX earned Stars in 1.), 2.) and 4.) above.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of the dividend stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description: 1.) NPV MMA Diff. and 2.) Years to >MMA. PAYX earned a Star for 1.) above.
Conclusion: PAYX earned one Star in the Fair Value section, three Stars in the Dividend Analytical Data section and one Star in the Dividend Income vs. MMA section for a total of Five Stars which rates it as a 5-Star Strong Buy.
Disclaimer: As always this is only my opinion and you should not rely on it. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I own shares of PAYX.
What are your thoughts on PAYX?
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Thanks for the email - and nice looking blog here. I also enjoyed your analysis of PAYX - the pdf document you have put together is amazing. The lack of dividend increase in 2003 is a bit concerning. I really dislike seeing a missed dividend increase in there. I also have been weary of this one due to its higher P/E, but it seems to be holding strong on that!
I have added you to my blogroll.
The Dividend Guy
Good job on the blog.
I like PAYX but I need a little higher yield to include it my selection.
I have been looking at PAYX for sometime. The flat dividend also concerned me, but I opted to open a small position based on the strength of other attributes (esp. the "Rolling 4-yr Div. > 15%" which is one I really like).
It is interesting to note that PAYX’s highest dividend payout % occurred in 2003. At 56%, this is still considered low.
Thanks for visiting my blog and adding me to your blogroll!
Div Guy: I try to balance the lower yield/higher growth stocks with a select few higher yield/lower growth stocks. I have a position in ACAS that I am looking to increase in November. I have been in and out of SFI (currently) out, and considering going long in it in November.
Thanks for visting by blog!
I'm trying to recreate your calcs and cannot get your avg high yield price. I get 35.05 using your narrative--avg(current yr dividend/each of last 5 years high yield). What am I doing wrong. I got avg pe price and graham number that you did.
thanks for the blog.
Anon:The formula is:
current dividend / avg(5-year high div. yield)
with numbers:
58.40 = 1.02/ avg(0.61/32.98 + 0.51/28.6 + 0.47/28.83 + 0.44/23.76 + 0.33/20.39)
Best Wishes,
D4L