Accenture Stock: Analyzing Attractiveness For Dividend Investors
Summary
- Accenture is a technology, consulting and services company that also pays a dividend.
- The dividend has been growing by 10% CAGR and I also expect them to continue at this pace.
- The recently published Q4 2021 results, based on which I assess their performance.
- As a dividend value investor, I assess whether Accenture is an attractive investment right now.
JHVEPhoto/iStock Editorial via Getty Images
In this article, I investigate the performance and quality of Accenture (NYSE:ACN) and assess if it could be an interesting investment right now. The conclusion is that although Accenture is an interesting company that is paying a well covered and rapidly growing dividend. The current valuation, however makes the company not an attractive investment right now. It would take 10 years for the dividend to grow to the YoC that I would normally achieve as entry YoC with my 'typical' non-tech investments.
My personal investment strategy and goal
Let me first share with you my personal investment strategy and goal, to help you understand my perspective. My goal is to reach financial independence years before my official retirement age of 67 (or perhaps even 70 or later by then). This independence is achieved when my annual dividend income equals or exceeds my annual cost of living. At that moment I become completely independent from the income from my full-time job. Maybe I am still happily working in a full-time job and continue working, but maybe I decide to quit and find a different meaning for the remainder of my life. Achieving this goal of financial independence seems very realistic and from the back of the envelope calculations, I can achieve it within the next 10-15 years.
All my investment decisions are made with this ultimate goal in mind. This means that whenever I have money to invest (my monthly addition to my investment account or re-investing dividend), I assess how it brings me closer to reach this goal. This means that I look at the dividend that I expect the investment to generate immediately, but also 10 - 15 years into the future. This means that I always try to balance between a reasonable entry yield and expected dividend growth. I also only invest in undervalued or fairly valued high-quality companies and intend to hold them for decades. Safety of principal and foremost reliability of the dividend are extremely important to me.
Focusing on dividend-paying companies kept me from investing in tech companies like Amazon (AMZN) and Alphabet (GOOG), missing out on their stellar results. They don't pay any dividend (at least not yet), but have still seen stellar share price returns.
To still benefit somehow from the impressive growth that technology (companies) can generate and supercharge my portfolio, I also try to have some dividend-paying technology companies in my portfolio, even if not 100% technology. This has brought me to positions in for example Texas Instruments (TXN), Broadcom (AVGO), Digital Realty (DLR), Crown Castle International Corp. (CCI) and American Tower (AMT). For achieving my investment goal and tracking I only account for their dividend and expected dividend growth, but any significant share price increases are of course very welcome and a bonus.
As you can see these share price increases are also nothing to sneeze at and are completely on top of their fast-growing dividend. Not bad, right?
I am again on the lookout to strengthen this technology segment in my investment portfolio and I have decided to check out Accenture. They are not a pure technology company, but still technology represents a major part of their business.
What does Accenture do?
The company is a consulting and technology firm that operates globally with 624K employees. SA describes them as follows:
Source: Seeking Alpha
They have around USD 50B revenue from which the majority comes from North America and Europe.
Source: Accenture Q4 2021 shareholders presentation
They are listed on the NASDAQ and have a market cap of USD 200B.
They have three main segments of services, where Technology is the largest (60% of revenue):
Source: Accenture Q4 2021 shareholders presentation
The company revenue is coming from 40 different industries and achieved by these 5 Industry Groups:
Source: Accenture Q4 2021 shareholders presentation
Reasons to like about Accenture
Strong profitable growth, powered by Cloud business
In fiscal FY2021 revenue reached USD 50.5B, showing 11% growth compared to the previous year. In conjunction with revenue growth of 11%, EPS increased by 18% to USD 8.80. This means that they have been able to grow profit at a higher rate than their revenue. This means margins have developed well and this is a good sign. Besides revenue and profit growth, they have also been able to expand their Bookings to EUR 59.3B (+20%), which means that they have already contracted over a full year of revenue and this gives their financial performance resilience, a very comfortable position to be in.
One of the drivers is their strategic priorities. They have for example a specific business unit called Accenture Cloud First, which shows very impressive growth. In their FY2021 revenue in this segment grew from USD 12B to 18B (+44%). It is not only that the segment is growing rapidly, it is also becoming a larger part of their revenue. For FY2021 the Cloud Segment is 36% of their total revenue, meaning that it really gets critical mass in the company and can significantly add to the overall company's growth and margin expansion.
As you can see later in this article, I have some question marks around reconciling the revenue numbers of the reported individual strategic priorities, so I am a bit cautious here.
Strong Brand
According to BrandZ the Accenture brand is very well known and valuable. They estimate the brand to be worth USD 64B, ranking them at 27th place in their top 100 of Most Valuable Global Brand. Having a strong brand helps to attract and retain large customers and also gives you pricing power which drives up your margins.
Shareholder friendly management
In FY2021 the company returned USD 5.9B to shareholders.
Source: Accenture Q4 2021 shareholders presentation
This represents USD 3.7B in share repurchases and USD 2.2B in cash dividends. The dividend is also increased by 10%, underlining the company's shareholder-friendly attitude. For FY2022 they expect to return USD 6.3B to shareholders, which means an increase of 6.7% compared to FY2021. I expect them to continue their pace of 10% dividend increases in 2022 and beyond.
Reasons to like less about Accenture
Margins are nice but not great
Margins are growing and okay compared to non-technology companies that I usually invest in, but compared to other similar companies they are relatively low.
Operating Margins are for example growing 32.4% in FY2021. This looks low compared to the sector median of 48.78%.
Source: Seeking Alpha
On top of that, here they are not even compared to really pure technology companies. These are the peer companies that are shown in Seeking Alpha and are used to determine the Sector Median statistic.
Source: Seeking Alpha
As you have seen they enjoy good healthy margins, but they are not great.
Questionable revenue (growth) numbers for individual strategic priorities
The strategic priorities are growing rapidly if you believe the following chart.
Source: Accenture Q4 2021 shareholders presentation
If you, however, do some further analysis they seem to be inflated (I assume by significant overlaps between these segments). If you simply would take these revenue numbers for face value this would mean their strategic priority generate USD 40B in revenue and grew on average with 30% or 10B in FY2021. Being aware of the company's overall revenue of USD 50.5B and only 11% (USD 5B) overall revenue growth in FY2021, this seems to be odd and impossible. How can the remaining 10B in non-strategic revenue result in a 5B decline in revenue to arrive at the overall revenue growth of 5B? The only reason I can think of is that the revenue break-down numbers are inflated or have very significant overlaps. The latter is what I suspect since they also mention the numbers include some overlap below the title.
I am not questioning their company's overall revenue numbers, revenue quality and growth. I am however a bit concerned by the findings in this back of the envelope revenue reconciliation and I urge you to be careful to put too much weight on these statistics about these individual strategic priorities.
Current Dividend yield
At the moment of writing the dividend yield (FWD) is 1,2%, growing for 10 consecutive years with 5 Yr CAGR of 10%. 
Source: Seeking Alpha
Based on their recent performance numbers and track record, I think it is fair to assume they will continue to grow the dividend by 10% per year. The 4-year average dividend yield is 1.5%, which also indicates Accenture seems to be currently higher valued than their historical average.
The entry dividend of 1.2% is not great compared to other non-technology dividend companies, where you can easily find entry dividend yields of high-quality companies around 3 - 4%. The expected dividend growth for Accenture is however higher than most of these companies can achieve.
As stated earlier in the article, my personal goal is to maximize extremely reliable dividend income in the next 10-15 years. Let's see where Accenture's dividend yield and expected growth would develop in the next 10 - 15 years.
| Time | Dividend yield (YoC) | Dividend growth |
| Now | 1.2% | 10% |
| +5 years | 1.8% | 10% |
| +10 years | 2.8% | 10% |
| +15 years | 4.5% | 10% |
Source: author table
As you can see the YoC in 15 years would only be 4.5%. This is mainly due to the low entry dividend. My overall portfolio, reflecting on average my 'normal' investments, averages around 3.5% dividend yield and 6% CAGR dividend growth.
| Time | Dividend yield (YoC) | Dividend growth |
| Now | 3.5% | 6% |
| +5 years | 4.4% | 6% |
| +10 years | 5.9% | 6% |
| +15 years | 7.9% | 6% |
Source: author table
As you can see Accenture is expected to only have YoC of 4.5% in 15 years, compared to 7.9% for my 'typical' investments. It would take a current investment in Accenture 10 to 15 years to reach the same starting YoC that I lock in with my "typical' investments.
Current valuation
Of course, it is insufficient to assess the valuation of a company by only considering dividend yield. The current rich valuation of Accenture is also showing when considering other metrics.
PEG ratio of 2.61 (non-GAAP FWD) and 2.22 (GAAP), where a value of 1 or lower would indicate undervaluation. This also confirms the impression of overvaluation.
PE ratios of 30 - 35 provide implied earnings growth of 12% in the next years using Benjamin Graham's simple formula. This doesn't seem to be too optimistic but is also not showing us they are
The Quant Factor for Value also indicates the company is not attractively valued right now.
Source: Seeking Alpha
Investment Thesis
Accenture is an interesting company where technology is a major part of their business and (for me) positively compares to other technology companies by the fact they pay a fast-growing dividend. I analyzed the company to see if it could be an interesting addition to my portfolio.
They are surely showing impressive revenue growth and healthy margins, management is also shareholder-friendly. Their Cloud revenue shows very impressive growth and seems to be already around 1/3rd of their overall revenue. They pay a dividend, have been growing this dividend by 10% annually and I expect them to keep this pace in the next years as well.
Looking however at the current valuation, I am not convinced. Looking 15 years down the road, the YoC from investing against the current share price is estimated at only 4.5%. The main driver is the low entry yield of 1.2% which is also below their historical average of 1.5%.
Besides dividend yield, also other valuation ratios like PE and PEG ratios indicate the company is fully valued or overvalued.
For me, Accenture is not an attractive investment right now. They don't seem to be able to provide an appealing YoC 10 - 15 years down the road.
Conclusion
As you have seen, my analysis of Accenture, unfortunately, did not lead to another dividend-paying technology company to add to my portfolio. It is however important to do your due diligence and do a proper check of how the potential investment fits with your overall investment goals.
I will continue to be on the lookout for other dividend-paying companies that might be more appealing. If you have any suggestions, happy to hear them!
Many thanks for reading and looking forward to any questions and feedback!
This article was written by
Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. 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.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
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Comments (16)
I see them somewhat overvalued at this time. With a PE of nearly 35 and earnings estimates of around $9 this year and the $10, and $11 the following years are good, but not enough to drive the stock much higher. Tiger