Many investors look for stocks that pay consistent dividends, as they like the income they provide when the stock market is down. That way, they don't have to sell stocks at a loss to fund another investment or pay for bills in retirement. However, many dividend stocks do not offer strong upside, as they are mostly mature businesses.
Every once in a while, you can pinpoint a dividend stock with a strong upside, and those are the ones to pay attention to. I've identified one, and it's a stock that has remained under the radar despite its enormous size. So, what is this dividend investment with a significant role in the artificial intelligence (AI) sector? Read on to find out.
Accenture has dominated the S&P 500 over the past decade
The company that checks these boxes is Accenture (ACN +1.91%), the giant consulting firm based in Ireland. Accenture is the 50th largest public company globally and holds a market cap just shy of $200 billion. But why has this company gotten relatively little notice? It likely has to do with how boring a business tech consulting is.
Accenture is a key partner for many companies. It provides the expertise necessary to automate processes, set up cloud computing, determine business strategy, and deploy and develop AI models. Essentially, if a client doesn't know how to create a solution or even where to start, Accenture can guide, build, and maintain those solutions.
NYSE: ACN
Key Data Points
This no-brainer business has made Accenture a remarkable investment, as it has doubled the S&P 500's performance over the past decade.
However, Accenture isn't immune to economic slowdowns, which is what it's currently experiencing. When budgets tighten up, projects are cut and ideas shelved. This doesn't bode well for consulting firms like Accenture. With revenue only increasing by 4% in the fourth quarter of fiscal 2023 (ended Aug. 31) to $16 billion, it shows that Accenture isn't thriving in this environment. This weakness is expected to extend into fiscal 2024; management only forecast 2% to 5% growth.
So, with Accenture's growth slowing, why is it a great investment now?
Accenture sees a massive growth runway in the AI sector
When economies worldwide start firing on all cylinders again, there will be multiple areas companies want to improve. Among those is undoubtedly AI, and Accenture will be there to help implement these solutions. We're in the early innings of AI development and cloud computing, and Accenture is excited about these opportunities. Accenture believes only 10% of companies have "mature data and AI capabilities," which bodes well for its future, as Accenture has multiple offerings in this field.
With the stock's current weakness, you can pick up shares for prices not seen for a few years.
Data source: YCharts
While you wait for this next business wave, Accenture will pay you a $1.29 quarterly dividend per share (which was recently increased by 15%). That equates to a 1.4% yield, which isn't the highest, but it's more or less in line with the S&P 500's yield of less than1.6%.
It's also buying back shares. In fiscal 2023, Accenture repurchased $4.3 billion in shares. After adjusting for stock-based compensation, $2.4 billion went to retiring shares, or about 1% of Accenture's market cap. Over time, those repurchases will start to add up and are another reason to invest in Accenture.
If you're buying Accenture shares (like me), you must be invested for the long term. Accenture's turnaround won't happen overnight, and the stock will likely begin rising well ahead of actual business results. With Accenture at a fairly reasonable historical valuation, I think it makes for a great buy here, as it will be vital in the future integration of many vital technologies, including some that aren't available right now.
Accenture is an investment in the future. As a result, it is a practically timeless investment with strong potential to beat the market over the long term, which is why it's a bedrock position in my portfolio.
