Accenture (NYSE:ACN) is a global leader in information technology services. It employs 384,000 people and has a presence in more than half of the countries of the world. Accenture has long-standing relationships with many of its clients while over 80% of the Global Fortune 500 is serviced, at least in part, by Accenture. Accenture is the ideal stock for dividend investors as it is a growing company with a long history of paying out an increasing dividend on a consistent basis.
Streamlined Operations and Forward Looking Approach
The IT services industry is very fragmented so Accenture has a lot of competitors. Its chief competitors include large blue chip stocks like IBM and Oracle (NYSE:ORCL). Accenture has managed to grow revenue meaningfully over the last few years despite significant switching costs as its focus on the IT services industry often makes it the preferred option for companies looking to upgrade or change their IT infrastructure. Accenture offers a broad range of services through specialized groups. It has forged a reputation in recent years as the innovative and nimble player in IT succeeding in a climate where its competitors have largely stagnated.
IT services are developing fast as companies move to cloud-based platforms and expand their social presence through various 'new media' sources. Accenture's new platform is focused on bridging the gap between legacy systems and the 'everything-as-a-service' cloud approach. In the last couple of years Accenture has carried out over $2 billion in acquisitions as it grows its scope. It is exciting to see them embracing this hybrid approach which gives them a broad arsenal to help deal with clients at various levels of technology adoption. In tandem with this approach, Accenture's long term relationships with market leaders in key industries lends them a unique perspective of evolving technological trends which they can use to keep relevant and stop their offering becoming commoditized.
Industry Leading Revenue and Earnings Growth
The IT services industry has been stagnant over the last few years as the US economy has stalled. Accenture has managed to expand its business in contrast to its competitors. Over the last three years, Accenture has delivered revenue growth of 4.6% annualized while earnings have grown by 7.8%. IBM, Accenture's chief competition, has seen 18 consecutive quarters of revenue decline and is forecast to shrink further in the coming year. IBM is forecast to lose 2% in revenue over the next year while, over the same period, Accenture is expected to grow revenue by 7%. Therefore, although Accenture's P/E is 19.2 while IBM trades at 13.7x earnings, the growing company is the preferable buy.
Healthy, Consistent and Growing Dividend Payment
Accenture has raised its divided every year since it originally introduced one in 2005 achieving greater than 20% annual dividend growth over the last 12 years. While it has raised its dividend rapidly, it has also maintained a healthy balance sheet free of both short term and long term debt. Due to strong earnings growth, Accenture has managed to maintain a low payout ratio allowing it significant scope for further investment while also offering a healthy dividend. Over the next three years, Accenture is expected to grow the annual dividend from $2.31 to $3.20 yielding a payout ratio of 40% on consensus earnings per share of $7.80.
I first acquired stock in Accenture 5 years ago in October 2011 at a price of $55.88. I have got a compound annual growth rate (including reinvesting dividends) of 17.7% from ACN over this period. For context, if I had bought IBM or Oracle stock at the same time I would have got a CAGR of 1.0% and 7.1% respectively. Even if I had bought IBM or Oracle at the lowest point they hit in 2011, my CAGR for each would still have been 4.5% and 10.8%.
Accenture is well positioned for the future as the leading provider for cloud-based enterprise services as well as offering a suite of other market leading services. It has a very loyal management and client list as well as a healthy financial footing. I would recommend it to any dividend investors looking to add a safe blue chip dividend stock to their portfolio which will provide at least a 6% annual return over the next five years.
Disclosure: I am/we are long ACN.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I reinvest the dividends I receive from Accenture stock