Paychex — Good Yield, Great Growth

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Double-digit dividend growth, a 3.31% starting dividend yield, and down almost -20% from its 52-week high?

That’s Paychex, Inc. ($PAYX).

Paychex, Inc. is a human resources, payroll, and employee benefits provider.

Per the company’s official website, “Paychex pays one out of every 11 American private sector workers.“

This is a well-established business with over 800,000 clients throughout the United States and Europe. And, in a market where everything is going parabolic, Paychex is actually down -7.85% year-to-date.

I’ve had Paychex stock on my watchlist for some time, but have never purchased shares because the yield was always just a little too low. But, between the recent sell-off and the firm’s 10% dividend raise in May of this year, Paychex is now yielding 3.31%. A reasonable starting dividend, especially in this market.

With that in mind, let’s take a look at Paychex’s valuation and future dividend growth potential…

Paychex currently trades at a price to earnings ratio of 23.92. While certainly not as cheap as something like Aflac Incorporated with its PE ratio of 15.63, Paychex is still cheaper than the S&P 500.

As mentioned earlier, Paychex has a 3.31% starting dividend yield. This is higher than competing payroll management firm Automatic Data Processing, Inc.’s 2.10% starting yield. Additionally, Paychex has a 5-year compound annual dividend growth rate of 15.51%. This dividend growth has been slowing in recent years, with the company *only* hiking its dividend by 10% this year, 10.1% last year, and 13% in 2023.

Still, Paychex is delivering double-digit dividend growth.

And according to “The Rule Of 72,” a 10% annual dividend growth rate would still double a shareholder’s yield on cost in just over 7 years.

The one issue with this stock that I don’t like is the payout ratio. Paychex has a dividend payout ratio of 80.72%. The distributions are still covered. But, the higher a company’s payout ratio, the less room there is for dividend growth.

That said, Paychex did grow its client list from 745,000 users in 2024 to 800,000 in 2025.

So as long as Paychex can continue expanding and growing its earnings per share, it can maintain steady dividend growth. Still, the high payout ratio is something to consider when looking at this stock.

Overall, I like Paychex and think this is a good business that offers both a strong starting yield and great dividend growth. On top of this, Paychex has delivered a 10-year average annual total return of 14.27% — slightly less than the Vanguard S&P 500 ETF’s 15.19%, but Paychex is both higher yield and trading at a lower valuation.

This is a stock I’m definitely interested in buying and holding for the long-run.

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Disclaimer: This article is for entertainment purposes only. It is not financial advice, always do your own research.