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There is a lot to be liked about H&R Block, Inc. (NYSE:HRB) as an income stock. It has paid dividends over the past 10 years. The stock currently pays out a dividend yield of 4.0%, and has a market cap of US$5.0b. Does H&R Block tick all the boxes of a great dividend stock? Below, I'll take you through my analysis.
5 questions I ask before picking a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
- Is their annual yield among the top 25% of dividend payers?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has dividend per share risen in the past couple of years?
- Is is able to pay the current rate of dividends from its earnings?
- Will it be able to continue to payout at the current rate in the future?
Does H&R Block pass our checks?
H&R Block has a trailing twelve-month payout ratio of 29%, which means that the dividend is covered by earnings. In the near future, analysts are predicting a higher payout ratio of 47% which, assuming the share price stays the same, leads to a dividend yield of around 4.1%. However, EPS is forecasted to fall to $1.95 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
If there is one thing that you want to be reliable in your life, it's dividend stocks and their constant income stream. In the case of HRB it has increased its DPS from $0.60 to $1 in the past 10 years. It has also been paying out dividend consistently during this time, as you'd expect for a company increasing its dividend levels. These are all positive signs of a great, reliable dividend stock.
Relative to peers, H&R Block has a yield of 4.0%, which is high for Consumer Services stocks.
Keeping in mind the dividend characteristics above, H&R Block is definitely worth considering for investors looking to build a dedicated income portfolio. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. There are three relevant factors you should look at:
- Future Outlook: What are well-informed industry analysts predicting for HRB’s future growth? Take a look at our free research report of analyst consensus for HRB’s outlook.
- Valuation: What is HRB worth today? Even if the stock is a cash cow, it's not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether HRB is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.