Key Takeaways
- ADP raised its quarterly dividend 12% on Nov. 11, its 52nd consecutive year of increases, while IBM declared its regular $1.69 quarterly dividend on Oct. 21.
- IBM yields 2.7% to ADP’s 2.4%, and its dividend took a smaller share of free cash flow over the twelve months to Sept. 30, 43% against 51%.
- ADP’s dividend grew 12% a year from fiscal 2021 to fiscal 2026, against 0.6% a year for IBM from fiscal 2020 to fiscal 2025, and ADP carries far less debt.
- At each dividend’s current pace, ADP’s income on $10,000 would pass IBM’s in 2028, but ADP’s stock costs 24x forward earnings to IBM’s 19x.
Automatic Data Processing (ADP) raised its quarterly dividend 12% to $1.90 a share on Nov. 11. That makes 52 consecutive years of increases.
International Business Machines (IBM) has a different kind of record. Its board declared another $1.69 quarterly dividend on Oct. 21, and the company noted that “With payment of the December 10, 2026 dividend, IBM will have paid consecutive quarterly dividends every year since 1916.”
Retirees seeking income want a check they can count on for decades. So which is the better dividend stock for retirees?
| Metric | IBM | ADP |
|---|---|---|
| Dividend yield | 2.7% | 2.4% |
| Annual dividend | $6.76 | $7.60 |
| Dividend growth, 5 years | 0.6% a year (fiscal 2020-2025) | 12.4% a year (fiscal 2021-2026) |
| Record (company’s own count) | Paid every year since 1916 | 52 straight years of increases |
| Cash dividend payout ratio, TTM to Sept. 30, 2026 | 43% | 51% |
| Cash dividend payout ratio, forward | 40% (fiscal 2026) | 56% (fiscal 2027, year to June 2027) |
| Net debt/EBITDA | 3.1x | 0.3x |
Source: TIKR, consensus estimates and company releases.
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IBM’s dividend is safe, and barely growing
IBM covers its dividend comfortably. Over the twelve months to Sept. 30, it paid $6.34 billion in dividends out of $14.66 billion of free cash flow, a cash dividend payout ratio of 43%. Consensus puts that at a roomy 40% for fiscal 2026, and the company backs the improvement: on Oct. 21, it said it now expects full-year free cash flow to rise by more than $1 billion. Software led the third quarter, up 8%, with Red Hat up 11%.
The dividend has taken around half of free cash flow most years, with a high of 65.4% in fiscal 2022:
The catch is growth. IBM paid $6.51 a share in fiscal 2020 and $6.71 in fiscal 2025, so $10,000 at its 2.7% yield pays $270 a year now and about $285 in year 10. That’s a 2.9% yield on your original cash.
The bigger risk is debt: $63.8 billion at the end of the third quarter, IBM Financing included. And on Nov. 9, the EU’s eu-LISA agency sued IBM, Atos and Leonardo over delays in rolling out the EU’s border system. The agency says the case concerns only the development phase, so it doesn’t change the cash math today.
ADP trades a smaller check for real growth
ADP’s dividend has done what IBM’s hasn’t: compound. ADP paid $3.70 a share in fiscal 2021 and $6.64 in fiscal 2026 (the year ended June 2026). Over the twelve months to Sept. 30, the dividend took a comfortable 51% of free cash flow. Its payout ratio has stayed between 47.6% and 56.7% every fiscal year since 2021:
Free cash flow grew from $1.89 billion in fiscal 2017 to $5.24 billion in fiscal 2026, so the dividend has climbed in step with the business.
In the three months to Sept. 30, revenue rose 6% to $5.5 billion and adjusted EPS rose 13%. ADP raised its fiscal 2027 outlook and now expects adjusted EPS to grow 10% to 12%. Consensus has fiscal 2027 free cash flow slipping 5% to $5.0 billion, which lifts the forward payout ratio to a still well-covered 56%.
The main risk is ADP’s clients. The company expects client revenue retention to slip 10 to 30 basis points this fiscal year.
So which dividend wins?
ADP is the better dividend stock for retirees. Buying today, you give up $30 a year of income on $10,000, ADP’s $240 against IBM’s $270. At each dividend’s current pace, ADP’s check passes IBM’s in 2028, and by year 10 it pays about $580 against about $285.
IBM still has a real case. Its check is bigger today, its free cash flow covers it better, and the stock is cheaper at 19x forward earnings. I’d expect management to work very hard to keep a record that goes back to 1916. But a check growing 0.6% a year buys less every year of a long retirement, and IBM’s debt leaves less room if the business stumbles.
ADP’s price is the trade-off. Its forward P/E has climbed a long way since spring:
At 24x forward earnings, ADP sits a little under its five-year average and well below its 36x peak in December 2021. That’s still well above the 16x it hit on April 10, but I’d pay a fair price for a dividend with 52 straight years of raises.
Hiring could slow that run. ADP expects U.S. pays per control to rise only about 1% this fiscal year, which would leave less room for the next raise.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
