One high-quality dividend stock often overlooked is Intuit (INTU 0.78%), a financial software company that owns the popular tax-filing service TurboTax, credit monitoring website Credit Karma, and small business accounting software QuickBooks. Many dividend investors likely gloss over the stock as a potential income-generating investment to add to their portfolio because Intuit's dividend yield is very low -- at just 0.7%.
But income investors may want to take a closer look at Intuit as a potential investment given the strong prospects of its overall business as well as the likelihood of robust dividend growth in the years to come.
QuickBooks Online. Image source: Intuit.
Impressive business growth
Investors who glanced at Intuit's fiscal third-quarter results last week might mistakenly think the company is struggling to grow its top line. But the 8% year-over-year decline the company reported was simply because of the IRS extended the tax-filing deadline to July 15. "This caused the timing of millions of tax filings to shift later in the season," said Intuit CEO Sasan Goodarzi in the company's earnings release. Most of this lost revenue, therefore, will simply move to the following quarter.
In addition, highlighting Intuit's growth story is its online ecosystem revenue -- a category that lumps together revenue from Intuit's online small-business and self-employed offerings. Revenue from this segment still managed to grow 28% year over year during the period. And this key catalyst would have grown at a 30%-plus rate in fiscal Q3 if it wasn't for the majority of Intuit's customers being negatively impacted by shelter-in-place orders during the second half of the quarter, which ended April 30.
As the economy begins to reopen, Intuit is in a solid position to return to growth. Not only will it benefit from higher TurboTax revenue in fiscal Q4 but the company said it's still on pace to grow its overall QuickBooks Online customer base and average revenue per customer in fiscal 2020.
Why Intuit's dividend is poised to double
Intuit's dividend may be small, but it's growing fast -- and more steep growth for the payout is likely on the horizon.
The company most recently increased its dividend by 13%, marking Intui's eighth consecutive annual dividend hike. What's particularly notable about this dividend, however, is how small the payout is relative to Intuit's earnings. The company is currently only paying out about a third of its earnings in dividends.
Combining Intuit's low payout ratio with impressive business momentum, particularly in its online ecosystem product category, it wouldn't be surprising to see Intuit maintain a double-digit dividend growth rate around 13% over the next five to six years, putting the company on pace to double its dividend in less than six years.
