On the surface, Automatic Data Processing, Inc. (NASDAQ:ADP), Coach Inc. (NYSE:TPR), and Tiffany & Co. (NYSE:TIF) don't really have much in common.

Two of them are household luxury names, the other is a provider of human capital solutions... but investors aren't beholden to brands.

Our contributors think these three stocks should all be labeled "great dividend investments," read on to find out if they might be right for your income portfolio.

Profit from your paychecks

Todd Campbell (Automatic Data Processing): You get more perks as you climb the corporate ladder, and if you want to profit even more from those benefits, you might want to consider investing in Automatic Data Processing.

Business people jump for joy on a beach.


ADP is one of the biggest providers of human capital solutions to employers. It makes a lot of money from its employer services business, which handles corporate payrolls and administers corporate benefit programs, but it also makes money providing a comprehensive human resource outsourcing model to small and mid-sized businesses via its professional employer organization (PEO) segment.

ADP faces stiff competition, but a strong economy means there's a lot of business to spread around. Last quarter, ADP's revenue increased by a solid 5% to $3.4 billion as its employer services sales rose 2% and its PEO segment sales grew 12%. In employer services, the number of people on ADP client's payroll grew by 2.5% year over year, and in PEO, the average number of worksite employees grew by a double-digit rate to 471,000.

Overall, in fiscal 2017, ADP's guiding for the employer services business to grow between 3% to 4% and the PEO business to climb by about 13% from fiscal 2016.

ADP's top-line growth is also good news for its bottom line. Earnings per share were $1.31 last quarter, up from $1.17 one year ago, and that was $0.08 ahead of estimates. Contributing to its earnings was an increase in interest earned on client funds that it holds while it waits for payroll checks to clear. Interest income totaled $112 million last quarter, up 9% from one year ago. With employers continuing to hire, a tight labor market boosting wages, and the Federal Reserve increasing interest rates, interest income should remain an earnings tailwind for a while.

Currently, ADP yields a respectable 2.2%, and overall, a history of dividend increases and earnings tailwinds makes this stock worth owning in income portfolios.

ADP Dividends Paid (TTM) Chart

ADP Dividends Paid (TTM). Data by YCharts.

Carry this stock on your shoulder

Dan Caplinger (Coach): Luxury retailers have faced some real problems in recent years, and Coach has been no exception. The handbag and accessories specialist lost nearly half its value between 2013 and 2015 as competition in the luxury handbag space weighed on its growth rates. For a while, it seemed that Coach had gone out of fashion for good.

However, Coach has done well in turning itself around. Despite a drop in sales during its most recent quarter, it managed to boost its net income by 9%, as moves to cut back on promotional activity and cut internal costs aggressively paid off with better bottom-line performance. Investors haven't yet seen margin figures climb back to their peak levels, but they've also bounced from their recent lows.

Moreover, the purchase of Kate Spade for $2.4 billion should offer Coach another avenue to bolster its overall business. By tapping into the popularity of the millennial-oriented retailer, Coach hopes to broaden its customer base and offer alternative ways of getting its products in front of shoppers. It could take some time for Kate Spade to add to Coach's profits, and the buyout target doesn't have a particularly strong international business. But with its help, Coach thinks it can make more from Kate Spade and do its namesake core business a favor as well, and if that strategy works, it could lead to a full recovery for the handbag maker going forward.

Those improving business results should fuel the company's 2.8% dividend yield and keep Coach's paying out less than three-quarters of earnings to income investors. 

A gem in a tiny blue box

Rich Smith (Tiffany): "Moving up in the world" is all about aspiration. It's about moving past a person's "needs" and having the wherewithal to purchase a few plain and simple "wants" every once in a while.

In a nutshell, it's about shopping at Tiffany instead of at Lou's Diamond Depot.

"The world has been enthralled with the distinctive Tiffany Blue Box since the very beginning," says Tiffany. "Crowned with a white ribbon, the Tiffany Blue Box is an international symbol of style and sophistication." And while those lines may sound (and are) self-serving, it's an inarguable fact that Tiffany charges more for its jewelry than many other jewelers hawking similar wares. The company's cachet is the main reason consumers so desire its products -- and a key reason investors might want to take a look at the stock.

Priced at 25.5 times earnings, shares of Tiffany are not cheap today. Then again, it rarely is cheap. Over the past 10 years, the stock has averaged a long-term P/E ratio of 25.2. One thing that could make it an attractive buy at today's prices, though, is the fact that over the past 12 months, Tiffany has enjoyed a surge in free cash flow, which now stands at $480 million -- nearly 8% ahead of reported net income.

Why is this significant? Before now, there's only been one year (2010) in the past decade in which Tiffany generated more cash profit than it reported as net income on its income statement. If you believe, as I do, that free cash flow and net income must ultimately balance out, that implies an earnings surge could be in the offing at Tiffany -- one that will make today's price look "cheap" a few quarters from now.

Meanwhile, Tiffany is paying out a nice 2.1% dividend yield while you wait for that to happen, and its dividend payout ratio is only 50%, leaving ample room for its dividend, too, to move up in the world.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.