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Hi,
There's endless speculation about the changes AI will bring...
This speculation has caused:
- Some stocks to see enormous valuation gains
- Other stocks to see surprising valuation declines
Negative valuation reappraisals are based on future "what if" fear-based thinking.
“Be fearful when others are greedy and greedy only when others are fearful.”
– Warren Buffett
AI Fears & ADP
ADP (ADP) is a prime example.
- ADP is the largest U.S. payroll processing company based on market cap
- It's a Dividend King with 51 consecutive years of dividend increases
- EPS grew from $3.25 in 2016 to $10.01 in 2025
(A 13.3% CAGR)
- Net profit margins have been over 15% since 2009
(Highly profitable)
By virtually any metric, ADP is a truly high quality dividend growth stock. It's one of the strongest around.
Disclosure: I (Ben Reynolds) am long ADP. ADP is my most recent buy personally.
Despite its fundamental strength, shares have declined from over $320 to under $220 due mainly to AI fears.
Source: Finviz
The Specific Fears
These fears are centered around 2 points:
- AI will reduce worker counts, reducing ADP's payroll processing profits.
- AI will be able to handle some or all of the services ADP currently provides.
Both of these points are based on speculation.
- AI isn't the first technological innovation that pundits expected to greatly reduce employment.
- Instead, populations and employment have continued to rise over the long run as efficiency gains from technology improvements have only created more opportunities, not less.
I am suspicious that "this time is different".
And as someone who personally uses ADP to manage payroll, the idea of using AI to handle payroll is beyond scary.
I'd much rather trust a critical task like payroll to a tried-and-true system than something that's unproven.
Not that it's even an option to use AI to process payroll now (at least not that I've seen)...
The AI Bull Case For ADP
There's also a bull case for ADP regarding AI.
ADP is perhaps the most trusted payroll processor around. And it's the largest...
It has an enormous amount of data. AI can use this data to better fuel predictions and analytics which can be packaged and sold to businesses.
And AI efficiency gains could improve already strong margins at ADP.
Additionally, AI could improve workplace efficiency without reducing payroll counts. This would lead to a stronger economy overall, which is helpful for ADP.
In any case, AI's impact on ADP is yet to fully be seen. The world is always evolving and changing.
But ADP has proven incredibly resilient in the past and has continued to thrive through a wide variety of economic conditions. It has a wide moat and a shareholder friendly management that both pays dividends and repurchases shares.
And ADP isn't the only high quality dividend growth stock around today that is trading at a discount...
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Founder, Sure Dividend
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