Dividend Investor Portfolio #16: Gainful Expertise
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Dear Investor,
Welcome to the 16th edition of TipRanks’ Dividend Investor Portfolio & Newsletter.
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Market-Moving News: July 8, 2024
Stocks ended the holiday-shortened week with strong gains. The S&P 500 (SPX), the Nasdaq Composite (NDAQ), and the Nasdaq-100 (NDX) recorded new highs on Friday, while the Dow Jones Industrial Average (DJIA) notched a solid weekly gain, though still trading about 1.5% lower than the record high it reached in May.
Stocks were boosted higher on Friday after June’s job market report supported a “Goldilocks economy” thesis. The string of monthly gains north of 200,000 positions continued in June, but outside of still-strong job creation, the numbers signaled that the labor market is quickly cooling off. The U.S. unemployment rate unexpectedly rose to 4.1%, its highest level since November 2021, while wage growth slowed to a three-year low. In addition, May’s hiring numbers were revised significantly lower.
The signs of the weakening job market with easing wage pressures have strongly increased investor bets on a September rate cut, as they added to signs of the disinflation trend seen in the previous months’ PCE and CPI reports. Still, Wall Street analysts warn against overly optimistic easing bets, as the job market has just begun to loosen up and remains very tight. On the other hand, the latest economic data has been consistent with the Federal Reserve’s view of steadily declining inflation in a gently cooling economy.
This week, investors will be closely following the June CPI report, slated to be published on Thursday, as well as Jerome Powell’s testimony before Congress this Tuesday, which may shed more light on the central bank’s assessment of the economy and its policy outlook.
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This Week’s Quality Dividend Stock Idea
Accenture Plc (ACN) is a multinational professional services company, which provides management consulting, technology, and outsourcing services. Most of its services span the IT sphere, offering corporate clients assistance with agile transformation, application modernization, enterprise architecture, software, and quality engineering, data analytics and management, process automation, natural language processing, and application management services, as well as software engineering services. ACN also provides management, HR, strategy, infrastructure, customer experience, finance consulting, mergers and acquisitions, and other services.
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The Making of a Global IT Services Leader
Accenture was founded in 1951 in Dublin, Ireland. It began its way as a business and technology consulting division of accounting firm Arthur Andersen, which was one of the “Big Five” global accounting firms until the 2000s. The firm split from AA in 1989 and adopted its current name in 2001 and became a publicly traded company in the same year. Though the company’s global headquarters are located in Dublin, Accenture’s stock is only traded on the NYSE. The company’s NYC office serves as its North American headquarters.
ACN has been logging in fast business and geographic expansion since its establishment as an independent company, achieving its goals through organic growth as well as numerous acquisitions. It has acquired more than 275 companies globally since 2001, including 13 in 2023 alone.
In addition, Accenture heavily invests in research and development. It has a network of around 400 performance and innovation centers, developing innovative solutions for the company’s clients. ACN has over 8,500 active or pending patents worldwide. The company has numerous cooperation agreements, such as a collaboration with Amazon’s Web Services to develop cross-industry solutions. It is also cooperating with ServiceNow and NVIDIA to fast-track the development and adoption of enterprise generative AI solutions. Having invested billions into AI and data capabilities, ACN aims to be a leader in the AI space.
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Vast Operations, Sticky Client Base
Accenture serves clients in more than 120 countries, with offices and operations in 49 countries. The company boasts a market capitalization of $205 billion, placing it in the Megacap category. With annual revenues of $64.1 billion, ACN is a Fortune Global 500 company.
Basically, Accenture provides the “picks and shovels” to the ongoing technological revolution. Previously, it helped companies transition to the cloud, and now assists them to incorporate artificial intelligence capabilities.
ACN’s global scale, unbeatable expertise, and vast accumulated knowledge make it a natural leader in its addressable market of the largest global organizations, including public, private, and nonprofit clients.
Thanks to the consulting service ecosystem it has built over the years, Accenture has a “sticky” client base that encompasses 75% of Fortune 500 companies. 95% of the firm’s largest customers, such as Amazon, Salesforce, Adobe, and others, have been with the company for more than ten years.
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Stellar Finances Support Robust Dividend Growth
ACN checks all the boxes on financial health, capital efficiency, and profitability metrics. Despite financing numerous acquisitions, the company has zero net debt (it has more cash than its total debt). The company takes pride in its robust ROE, ROA, and ROIC metrics, which come in the top 20% of its industry. Accenture’s operating, FCF, and net profit margins are also considerably higher than average for its peers, indicating outstanding operational efficiency.
These stellar fundamentals support the company’s strong dividend position. Accenture has increased its dividends annually for the last 11 years, with the payouts growing at a CAGR of 12% in the past five years. Analysts expect dividend growth to accelerate in the next several years, reaching 14-15%.
ACN’s current dividend yield of 1.69% is higher than the IT sector’s average of 1.02%. The company’s moderate payout ratio of 42% means that it has sufficient capability to pay and increase dividends without undermining its ability to invest in business growth, seek M&A opportunities, or perform buybacks.
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Industry Headwinds Create a Buying Opportunity
Accenture’s revenues and earnings have been growing at a CAGR of ~9% over the past five years, placing it at par with its peers’ average. However, in fiscal Q3 2024 (ended May 31st), the company’s results underwhelmed expectations. Although the company has exceeded EPS expectations in every quarter over the previous two years, the last four quarterly outcomes haven’t been very exciting in terms of earnings growth. ACN lowered its revenue outlook for the rest of the fiscal year in FQ2, dampening investor sentiment.
The management’s reduced guidance was not unexpected, as most major global consultants have reported diminishing demand for their services due to scaled-back IT budgets amid ongoing macroeconomic uncertainty. While the industry’s headwinds are still in place, ACN’s accelerating AI business is expected to support earnings growth going forward. Thus, in FQ3 the company reported $900 million in new bookings related to generative AI, up 22% year-over-year. Fiscal year-to-date, Accenture generated $2 billion in AI-related sales, which underscores the company’s early lead in this advanced technology.
Due to the industry-wide slowdown and the company’s weaker-than-expected results and guidance, ACN’s shares fell by about 20% from their March high. In our view, this decline creates an attractive buying opportunity, as the company’s stock – which was previously priced at a steep premium to its peers – is now trading below its historical levels. Compared to the relevant peer group, ACN comes in the middle of the valuation range. Moreover, based on projected cash flows, the stock seems to be about 10% undervalued.
Accenture’s capital allocation policy places a strong emphasis on returning capital to its shareholders through dividends and buybacks. In the last decade the company has annually redeemed shares for the amount of $1.5-2 billion, with the pace of buybacks accelerating in recent quarters. At the end of fiscal 2023, Accenture boosted its buyback authorization by $4 billion to $6.5 billion. In FQ3 2024, ACN repurchased shares for a total of $1.4 billion.
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Investing Takeaway
Accenture Plc is a global leader in IT consulting that is expected to strongly capitalize on the global technological transition thanks to its market dominance, global presence, long-term partnerships, and vast expertise. The company’s stellar finances and strong profitability support its fast rate of dividend growth, which is expected to continue in the years to come. All together, these factors make ACN an attractive addition to long-term income portfolios.
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Dividend Investor Portfolio
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Portfolio News
¤ JP Morgan (JPM) will report its Q2 2024 results on July 12th. In other company news, the bank’s chief market strategist, Marko Kolanovic, is leaving the bank after 19 years, following a poor record of stock market predictions over the past two years.
¤ Edison International (EIX): the company will go Ex-Dividend on July 8th.
¤ BlackRock (BLK) has announced an acquisition of U.K. data provider Preqin for $3.2 billion in cash, expecting to close the deal before the end of the year. This acquisition aims to enhance BlackRock’s access to private market investing. While positive for BLK’s business expansion, the deal raised concerns at Moody’s. The rating agency lowered the outlook on the firm’s credit rating due to the expected steep increase in BLK’s liabilities since it will be financed through new debt. BlackRock’s buyout of Preqin is its second large acquisition in a short period of time. Previously, it has secured debt to finance the $3 billion cash part of its $12 billion acquisition of Global Infrastructure Partners, which is expected to close later this year.
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Recent Trades
None at the moment, although we are considering adding a stock to our portfolio when the market conditions allow for an attractive entry point. Stay tuned.
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Portfolio Attributes
| Dividend Portfolio Yield |
Dividend Growth Rate | Annual Dividend Income |
| 3.73% | 9.26% | $3,762.20 |
| Yield-on-Cost Adjusted |
Weighted Growth | Equal-Weight 100K Portfolio |
Current Portfolio
| Name | EX-Dividend Date | Payment Date | Dividend Yield | Annual DPS |
| Automatic Data Processing (ADP) | Sep 10, 2024 | Oct 03, 2024 | 2.18% | $5.60 |
| Allianz SE ADR (ALIZY) | May 08, 2025 | May 13, 2025 | 5.25% | $1.50 |
| Amgen (AMGN) | Aug 16, 2024 | Sep 06, 2024 | 3.23% | $9.00 |
| BlackRock (BLK) | Sep 06, 2024 | Sep 23, 2024 | 2.55% | $20.40 |
| Edison International (EIX) | Jul 01, 2024 | Jul 28, 2024 | 4.29% | $3.12 |
| JPMorgan Chase (JPM) | Jul 05, 2024 | Jul 31, 2024 | 2.20% | $4.60 |
| Kroger (KR) | Aug 16, 2024 | Sep 03, 2024 | 2.32% | $1.28 |
| LyondellBasell (LYB) | Aug 30, 2024 | Sep 05, 2024 | 5.07% | $5.36 |
| Philip Morris (PM) | Jun 21, 2024 | Jul 08, 2024 | 5.82% | $5.20 |
| Qualcomm (QCOM) | Aug 29, 2024 | Sep 20, 2024 | 2.03% | $3.40 |
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Click here for more stock market analysis from TipRanks Macro & Markets research analyst Yulia Vaiman
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Disclaimer
The information contained in this article represents the views and opinions of the writer only, and not the views or opinions of TipRanks or its affiliates and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy, or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment, and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices, or performance.
