Get Paid With Paychex: Dividends and Higher Prices Too

Key Points

• Paychex is on track to reach new highs in 2025 as earnings quality improves and drives a healthy dividend outlook.
• The dividend is worth more than 2.5% at the end of March and is expected to grow annually. 
• Analysts are lifting their price targets and providing a tailwind for the market. 

In 2025, investors can get paid to own Paychex NASDAQ: PAYX. The company pays a healthy dividend, and its share prices are set to reach new records.

Up 7% for the year at the end of Q1, this market can rise another 7% in Q2 and set itself up for a sustained rally in the back half of the year.

Drivers include its sustained growth, earnings quality, and cash flow, which support the dividend and an outlook for distribution growth.

The company has already increased its payout for over a decade and is on track to be included in the Dividend Aristocrats index. 

Paychex Affirms Outlook for Sustained Growth and Margin Strength in 2025

Paychex FQ3/CQ1 2025 results are mixed relative to the analysts’ forecasts but did nothing to alter the long-term outlook for this business service. Revenue was as expected at $1.51 billion, up about 5% year over year, with strength in both segments driving results. Core management grew 5% and PEO 6%, with gains in client count, employees served, and revenue per employee. The key takeaway is that growth is accelerating and driven by more clients and more employees per client.

Margin news is also favorable, highlighting the company’s efforts and the opportunity presented by AI. PayChex digital HR, payroll, and insurance services are well-suited to AI optimization and automation, factors that improve performance, customer satisfaction, and margin. The net result is that the operating margin widened by 180 basis points and can be expected to remain strong, if not improve, in future quarters. Regarding earnings, adjusted earnings grew by 8% to outpace the top-line advance by 300 basis points and the consensus estimate by 70. 

Guidance is also lackluster relative to the analysts’ forecasts but no less positive for shareholders and the stock price. The company maintained its prior guidance for most metrics, expecting solid single-digit growth in the core Management segment, but increased the forecast for PEO growth and margin strength. Management will likely issue solid guidance for F2026 at the end of the year due to underlying strength in labor markets and the higher-for-longer interest rate environment. 

Paychex Provides a Healthy Paycheck for Reinvestment and Compounding

Paychex's dividend is healthy, yielding more than 2.5%, with shares trading near $250. It is also healthy due to the sustainable payout ratio and balance sheet health, an attractive feature for buy-and-hold investors. The balance sheet highlights increased cash, a net cash position, low leverage, and rising equity at the end of Q3.

Equity is up more than 8% in addition to the nearly 8% increase posted last year in Q3 and is expected to continue rising. Regarding the dividend distribution growth outlook, the dividend compound annual growth rate is running near 10% and can be expected to remain steady in 2025. The company also buys back shares, although not in large quantities. 

Institutional activity highlights the value opportunity for investors. The institutional buying ramped to a multi-year high in Q1 2025, raising their ownership to nearly 85% of the stock. Analysts rate it as a Hold and are lifting their price targets due to the guidance. They forecast a modest single-digit upside at the high end of the range, sufficient for a new all-time closing high. 

The Technical Outlook: Paychex Is Trending Higher

Paychex market has another hurdle to cross, but it is the last one before setting a fresh all-time high. The critical resistance point is at $152 and will likely be broken before the end of April. The market can then retest the all-time high and move to fresh highs later in the year.

The risk is that economic data will begin to deteriorate in CQ2 2025 and impact the outlook for labor markets and the stocks that serve them.