Quick Read
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Paychex (PAYX) pays a 4.3% forward yield, but dividends consuming 86% of earnings mean future raises will track EPS growth rather than outpace it.
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ADP (ADP) devotes only 50% of free cash flow to dividends and guides for EPS growth of 9 to 11%, giving it more room to raise payouts than Paychex.
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Paychex( NASDAQ:PAYX ) declared a quarterly dividend of $1.19 per share on October 15, 2026. That works out to an indicated $4.76 per share per year. The stock goes ex-dividend on October 26, and the payment lands November 25. With shares at $111.20, the forward yield is about 4.3%. Our view: the payout is safe. The buffer is smaller than it used to be, though, so future increases will probably track earnings growth rather than exceed it.
Cash Flow Covers the Check With Room to Spare
In fiscal 2026, operating cash flow totaled $2.56 billion, and capital spending totaled $234.9 million. That left roughly $2.32 billion in free cash flow. Dividends of $1.59 billion used about 68% of it. Earnings leave less room. The dividend took about 90% of net income, and the new $4.76 rate equals about 86% of fiscal 2026 EPS of $5.51. Add the $611 million spent on buybacks, and Paychex returned about 95% of its free cash flow to shareholders.
The first quarter of fiscal 2027 looked tighter on paper. Operating cash flow was $413.5 million, while dividends cost $424.1 million. CFO Bob Schrader put the shortfall down to "the timing of client and corporate tax payments." Paychex's quarterly cash flow swings a lot. The February quarter brought in $812.5 million. Schrader also made the company's priorities clear:
"We continue to focus on the drivers of long-term shareholder returns within our control, including strong earnings growth, sustained dividend growth, and disciplined capital deployment."
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Paycor Debt Is the Pressure Point
Paychex took on $5.0 billion in borrowings to buy Paycor. At the end of the quarter, it had about $4.6 billion in total borrowings against roughly $1 billion in cash and corporate investments. Total liabilities were $11.96 billion, compared with equity of $3.71 billion. Management never described the debt as a limit on the dividend. CEO John Gibson said:
"We continue to operate from a position of financial strength supported by our durable recurring revenue, strong cash generation, and disciplined investment."
How Paychex Stacks Up Against ADP and Paycom
Automatic Data Processing( NASDAQ:ADP ) paid $2,626.3 million in fiscal 2026 dividends. That was about 50% of its free cash flow, and ADP still had room to spend $2,083.3 million on buybacks. ADP also guides for faster adjusted EPS growth: 9% to 11%, compared with 7% to 9% at Paychex. Paycom Software( NYSE:PAYC ) pays a small dividend and leans on buybacks. Last quarter it spent $345.9 million on repurchases, compared with $17.9 million in dividends. Of the three, Paychex offers the most income, but ADP has more room to keep paying.
A Dividend Record Built on Steady Raises
Paychex has paid quarterly dividends without a break since 1999. The record has one pause: the payout stayed at $0.62 through 2020. After that, it rose each year to $0.66, $0.79, $0.89, $0.98, $1.08, and $1.19. The latest raise was about 10%.
What to Watch Before the Next Raise
Fiscal 2027 guidance assumes "flat employment levels." Gibson called the job market "low fire, low hire" and said the company is "still not seeing any signs of a recession." Keep an eye on PEO benefits enrollment in October and January, which management cited as a reason for keeping the outlook conservative. Wall Street is cautious too: 15 analysts rate the stock a hold, and the shares are down 8.26% over the past year. Free cash flow covers the $4.76 dividend easily, and the warning signs we flag when a payout is actually at risk (we laid out all seven in a free report) are not flashing here. A payout that already eats up this much of earnings, though, points to increases that stay in line with EPS growth from here.
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