Paychex (NASDAQ:PAYX) is a leading payroll solutions, human resources and benefits outsource provider for small-to-medium sized businesses. At the end of FY 2021 they had more than 710,000 client businesses that use their suite of human capital management, "HCM, and human resources, "HR", solutions.
Paychex's business is very sticky as once a business decides to use Paychex's solutions, they aren't likely to risk unnecessary disruption for their employees. The switching costs, even though they are primarily non-financial, are very real. Paychex enjoys very strong client retention levels because of that with retention rates at near record levels.
In May, Paychex announced a 20% increase in their quarterly dividend and one of the easiest signs that a business is doing well is a freshly increased dividend.
With that in mind I wanted to check in on Paychex and update my valuation of the business to see if the current valuation represents a buying opportunity.