H&R BLOCK INC (NYSE:HRB) – A Solid Dividend Stock with Strong Profitability and Financial Health

When assessing stocks for dividend investing, a balanced method is important. The "Best Dividend Stocks" screen finds companies with solid dividend traits while keeping good profitability and financial strength, key elements in maintaining payouts over time. The screen selects stocks with a ChartMill Dividend Rating of at least 7, ensuring strong dividend measures, along with minimum ratings of 5 for both profitability and health to exclude firms with poor earnings or solvency issues. H&R BLOCK INC (NYSE:HRB) stands out as a candidate to review under this method, showing a mix of steady income production and operational reliability.

Dividend Strength: Yield, Growth, and Sustainability

HRB's Dividend Rating of 7 shows its appeal for income-focused investors. Key points from its fundamental analysis report include:

• Good Yield: At 2.72%, HRB’s dividend yield is decent but competitive, beating 95.8% of its peers in the Diversified Consumer Services sector. While not the highest yield, its consistency adds worth.
• Steady Payout History: The company has kept or raised dividends for over ten years, showing dedication to shareholders even during economic changes.
• Reasonable Payout Ratio: HRB pays out just 34.3% of its earnings as dividends, leaving enough room to reinvest in operations or handle downturns without risking payouts. This matches the screen’s goal of avoiding overly high dividends (e.g., payout ratios above 80%).

Profitability Supports Dividend Durability

A Profitability Rating of 8 highlights HRB’s ability to produce earnings—a key factor for keeping dividends:

• Healthy Margins: Operating margins of 21.8% and profit margins of 15.1% rank in the top 10% of its sector, showing efficient operations.
• Solid Returns: A Return on Invested Capital (ROIC) of 38.4% is much higher than its cost of capital, indicating good use of resources to create profits.

Financial Health: Strengths and Considerations

With a Health Rating of 5, HRB displays mixed but acceptable financial conditions:

• Solvency: A strong Altman-Z score (3.01) and falling debt-to-FCF ratio (2.3x) suggest low bankruptcy risk. The company has also reduced shares outstanding, improving per-share metrics.
• Liquidity Issues: A current ratio below 1 (0.78) points to possible short-term cash flow challenges, though this is balanced by good profitability and manageable debt levels.

Valuation: Potential for Growth?

HRB trades at a P/E of 12.5, lower than 86% of industry peers and the S&P 500 (26.4). Its PEG ratio (accounting for growth) also suggests it may be undervalued, making it a possible value pick alongside its income appeal.

Why These Metrics Matter

The screen’s focus on dividend sustainability, profitability, and health aims to avoid "yield traps"—stocks with high but unreliable payouts. HRB’s mix of fair yield, sensible payout ratio, and steady earnings growth (15.5% EPS CAGR over 5 years) fits this approach, offering a balance of income and reliability.

For investors looking for similar options, check the full Best Dividend Stocks screen to find other high-quality dividend payers.

Disclaimer: This analysis is not investment advice. Always do your own research or consult a financial advisor before making investment decisions.