H&R Block Inc. (NYSE:HRB) Screens as a Quality Dividend Stock for Reliable Income

For investors aiming to build a portfolio focused on generating reliable passive income, a disciplined screening process is important. One useful method is to filter for companies that not only offer an attractive dividend today but also possess the underlying financial strength to maintain and possibly grow those payments over time. This method often involves looking for stocks with a high overall dividend rating, which assesses yield, growth, history, and sustainability, while also confirming the company maintains acceptable profitability and financial condition. This pairing helps to avoid the trap of a high yield that is finally at risk because of poor business fundamentals.

H&R BLOCK INC (NYSE:HRB), the well-known tax preparation services provider, appears as a candidate from such a screening strategy. Its fundamental profile suggests it could be a noteworthy consideration for dividend-focused investors, balancing income generation with reasonable operational stability.

Dividend Profile: A Reliable Payer with Room to Grow

The central appeal of HRB for an income investor lies in its solid dividend characteristics, which score a high 8 out of 10 on ChartMill’s Dividend Rating. This rating combines several key factors that are important for a sustainable income strategy.

• Attractive and Competitive Yield: The company currently offers a forward dividend yield of about 3.99%. While not the absolute highest on the market, this yield is viewed as strong both compared to the wider S&P 500 average (around 2.31%) and its industry peers in Diversified Consumer Services (average of 2.12%). It beats nearly 99% of its industry in this measure.
• Established Track Record of Growth: Reliability is key. HRB has paid a dividend for at least ten straight years and has not cut it during that time. More notably, it has grown its dividend at an annualized rate of nearly 6.8% over the past five years, showing a commitment to returning increasing capital to shareholders.
• Sustainable Payout Ratio: A high yield is meaningless if it is not sustainable. Here, HRB stands out with a payout ratio of about 33.4%, meaning it distributes just one-third of its net income as dividends. This leaves a significant buffer for reinvestment in the business, handling economic downturns, and funding future dividend increases without pressuring finances. The report notes that earnings are growing faster than the dividend, further supporting this sustainability.

Supporting Fundamentals: Profitability and Valuation

A strong dividend must be supported by a profitable business, and this is where HRB’s screening results show additional strength. The company earns a Profitability Rating of 8, signaling highly efficient operations. Key measures include a standout Return on Invested Capital (ROIC) of 35.3%, which places it at the top of its industry, and an acceptable Profit Margin of 16.1%. These numbers suggest the company is effective at generating earnings from its capital, which is the fundamental source of reliable dividend payments.

From a valuation point of view, HRB seems reasonably priced, scoring an 8 on the Valuation Rating. Its Price-to-Earnings (P/E) ratio of 8.7 and forward P/E of 7.4 are much lower than both the S&P 500 and industry averages. This valuation context is important for dividend investors, as it suggests the current yield is not a result of an elevated stock price but may instead represent a real income opportunity.

A Note on Financial Health

The screening criteria required "decent" financial health, and HRB’s Health Rating of 5 reflects a mixed picture, a point of consideration for investors. On the positive side, the company has a healthy Altman-Z score indicating low near-term bankruptcy risk and a manageable level of debt relative to its free cash flow. However, liquidity measures such as the Current and Quick Ratios are below 1.0, which is a point of weakness and suggests the company could encounter difficulties if required to cover all short-term obligations immediately. For a seasonal business like tax preparation, this requires understanding the cyclical nature of its cash flows, but it remains an area to watch.

Conclusion

H&R Block presents a case study in how a systematic screen can find potential dividend investment candidates. It meets the primary income objective with a yield that is both attractive and, importantly, supported by a long history of growth and a very sustainable payout ratio. These dividend strengths are fueled by a highly profitable core business, as shown by outstanding returns on capital. While investors should note its liquidity position, the overall profile, combining a high dividend rating with acceptable profitability and a low valuation, fits well with a strategy seeking lasting income.

This analysis of HRB was derived from a targeted screen for quality dividend payers. You can explore the complete list of stocks that currently pass this "Best Dividend" screen by visiting the screener here. Remember, a screen provides a starting point for research, not a buy list. A deeper review of HRB’s full fundamental report, including detailed growth projections and segment analysis, is available here.

Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer or solicitation to buy or sell any securities. The information presented is based on data provided and should not be the sole basis for an investment decision. Investors should conduct their own independent research and consult with a qualified financial advisor before making any investment decisions. Past performance is not indicative of future results.