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Friday, 10/03/2003

Cashing in on DRIP's
By Nich Sheldon
PAYX - Paychex, Inc.

Company Description

Paychex, Inc. is a leading national provider of payroll, human resource, and benefits outsourcing solutions for small- to medium-sized businesses. The company offers comprehensive payroll services, including payroll processing, payroll tax administration, and employee pay services, including direct deposit, check signing, and Readychex®.

[Source: Company Press Release]

Reasons to Invest:

No matter where you're from there is generally two days a month that most people look forward too. Nine times out of ten those two days are the first and the fifteenth of every month, otherwise known as payday. What's a better way to celebrate payday than to spotlight a company that divvies out the checks.

This weeks Drip of the Week is Paychex Inc. (NASDAQ:PAYX). Over the first three quarters of this year Paychex Incorporated's revenues rose 22% to $309.3M. Their Net income rose 6% to $80.3M. The company announced that their revenues reflect the addition of new clients and price increases. PAYX's net income was partially offset by higher personnel costs. An increase of more than 20% is very attractive for a company like Paychex Incorporated.

A quick look at the stock price history and one would see that the 52-week change for PAYX is 47.29 percent, so this stock is definitely a mover and a shaker. If you take that change and compare it relatively to the S&P 500 one would note a 52-week change of 18.23%. At the end of Friday's (10/03/03) session PAYX closed at 35.53, or 2.79% higher.

In 2000 PAYX broke over the 60 level and since then it has been on a downward spiral. I bet your asking why spotlight a stock that has been on a downtrend for the past three years?

At its current level, PAYX looks like a healthy choice for several reasons. First of all, the 30 level was strong short term resistance at the end of 2002 and for most of this year. Now that the stock has broken over the 30 level, we feel that the old resistance of thirty should turn into new support, carrying the stock higher. Secondly, PAYX's only real competitor is Automatic Data (NYSE:ADP) and they are also doing very well at the moment. Furthermore, the Labor Department announced this morning that the unemployment rate managed to stay at 6.1% for the month of September. Not only that, but the job market posted a net gain of 57,000 jobs. Keeping that in mind, whom do you think is going to write the checks for these new employees? Of course their bosses write the checks, but PAYX supplies the paper (or digital check) that their checks are written on.

If a climbing economy isn't enough to convince you that PAYX is an ideal DRIP, maybe this will. Paychex Inc. announced yesterday (10/02/03) that they were increasing their dividend from $0.11 cents per quarter to $0.12 per quarter. Shareholders on record before November 3rd, 2003 will be able to cash in on this new dividend increase November 17th, 2003. PAYX's annual dividend is now $0.48 per share, and their dividend yield is 1.38 percent.

Also noteworthy is an article from the company posted back on July 14th, 2003. Paychex Inc announced that they had added a new profit-sharing feature to their 401(k) plan. The new comparability option targeted employers who wanted to maximize their retirement contributions by offering them the flexibility to determine the plan's allocation method. Paychex said this type of plan could be designed to provide higher contributions as a percentage of compensation to a particular employee or group of employees.

In respect with growth rates, PAYX is estimating a dividend percentage of 4.76 percent over the next year. Over the next three years they are estimating a dividend percentage of 25.99 percent. Now for you long term stockholders (BIG GRIN), over the next five years, PAYX is forecasting a dividend percentage of 34.49 percent. If you ask me, this is a very impressive and attractive forecast, albeit it is just a forecast.

This concludes another exciting episode of the Drip of the Week. Stay tuned next week, for another DRIP worthy of the DripAdvisor.com limelight.

Until Next Week,
Nich Sheldon
Editor

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Broker Recommendations

Strong Buy         3
Buy                2
Hold              16
Sell               2
Strong Sell        2

Brokers Covering  25


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