H&R Block Boosts Shareholders Value

With an intention to return more value its shareholders, the board of directors of H&R Block Inc. (HRB - Analyst Report) authorized an increase of 33% in its dividend. The company will now pay a dividend of 80 cents per share, up from 60 cents per share paid earlier.

The increase will be effective with payment of quarterly dividend of 50 cents per share. The first increased dividend will be paid on January 5, 2012 to the shareholders as of December 22, 2011.

The dividend increase announcement came after a long gap of more than 3 years. The board of H&R Block, last in August 2008, had approved a dividend hike of 5.3% to total 15 cents per share. The company has been paying dividend over the last 196 consecutive quarters. The company has a solid dividend yield of 3.85%, much above the industry average of 1.93% as well as of its nearest peer Intuit Inc. (INTU - Snapshot Report) with a dividend yield of 1.12%.

However, there was no movement in share price of H&R Block despite the announcement. It is likely possible that the dividend increase news were more than offset by widened second quarter loss as well as terminating plans to acquire 2SS Holdings, Inc, developer of TaxACT digital tax preparation solutions, as the federal judge passed a ruling against it on antitrust grounds. The share price closed at $15.57 on Thursday, same as Wednesday’s close.

Over the last 7 days, 2 out of 6 analysts covering the stock nudged their estimates downward while only one analyst raised the same. We believe the company’s effort to return more value to shareholders might encourage analysts to pull their estimates upward. The Zacks Consensus Estimate for fiscal third-quarter 2012 and full year 2012 are respectively 11 cents per share and $1.52 per share.

The company’s realignment initiatives remain on track. Furthermore, to augment the performance of its core tax business, it has divested RSM McGladrey. RSM McGladrey has not been able to post revenue growth over the past few quarters.

Also, H&R Block ceased services under its EXPRESSTAX brand as it believes that EXPRESSTAX no longer features in its long-term growth strategy. 

We believe the company’s leading position in the tax preparer market, its strategic initiatives to grow its business by gaining and retaining customers and its cost containment measures augur well for long-term growth. Additionally, its focus on procuring and retaining clients will help it to grow its top line.

We retain our Outperform rating on H&R Block. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the shares over the near term.

Headquartered in Kansas City, Missouri, H&R Block Inc. is a leading provider of tax preparation services. Through its subsidiaries, the company provides tax, retail banking, accounting and business consulting services and products in the U.S., Canada and Australia.

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