Investors have different reasons for buying stocks. Some want to find companies that will grow fast for decades. And they're willing to take some risk to own them. Others want nothing to do with risk and are looking for predictable companies that pay a large dividend.
H&R Block (HRB +2.88%) fits into the latter category. And in a world where the dividend yield of the S&P 500 index is only 1.3%, it offers a safe distribution with a relatively small chance of losing a lot of money. Here's why I think the company is one you can count on.
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Everyone has heard of H&R Block
The name H&R Block is virtually synonymous with tax preparation. H&R Block offers both assisted and do-it-yourself support. It earns revenue from its tax offering in addition to related services, as well as royalties from franchises. Aside from the past two tax seasons -- where the delayed filing in 2020 became an avalanche in the company's fiscal 2021 -- it's consistently earned a little more than $3 billion per year in revenue.
To try to spur growth, management has introduced what it calls Block Horizons 2025. It's a five-year strategy to help small businesses and to ease the burden on people who are unbanked. That term refers to adults who don't use or have access to traditional financial services. It might surprise you to learn that 5.4% of American households are unbanked. The number comes from a 2020 survey conducted by the Federal Deposit Insurance Corporation. Growth would be nice. But as long as those sales stay consistent, the company should keep paying its whopping dividend.
The dividend is something to celebrate
H&R Block pays a dividend of $0.27 per quarter. That comes out to a 4.1% yield. It has been paying a quarterly dividend ever since 1972. It's massive compared to the broader index. Although the company has had a few periods where it stopped raising the payout, it has always resumed. In just the past decade, it's climbed from $0.70 per year to a projected $1.08 this coming year. That's not bad for a slow grower.
More importantly, the distribution is sustainable. In that span since 2011, the company has paid out 51% of net income and 43% of free cash flow in the form of dividends. That leaves a healthy margin for other spending or future dividend increases. The conservatism came in handy when business dropped off during the pandemic.
| Fiscal Year | Tax Filings | YoY Change |
|---|---|---|
| 2021 | 25.2 million | 24% |
| 2020 | 20.3 million | (14%) |
| 2019 | 23.6 million | 1% |
| 2018 | 23.3 | NA |
Data source: H&R Block; yoy=year-over-year.
Let your portfolio reflect your investment goals
H&R Block isn't for every investor. Its five-year strategy may bring in a bit of extra business or at least help preserve the existing customer base. But that isn't what shareholders are counting on.
The company is a slow-growing high-yielder whose stock price isn't likely to move much in any given day or month. Instead, it provides reliable income for an investor with a top priority of preserving capital. For many, that makes it the perfect addition to a diversified portfolio.
