Accenture

Strategy consultant with a huge customer base

Digitalization has been gaining relevance for years. The coronavirus pandemic fueled this growth enormously once again - many companies got a wake-up call of sorts and realized that this megatrend is not one to miss. If employees want to work from home or industrial processes are to be networked globally, the right infrastructure has to be built for it. Of course, that takes a lot of know-how - your own specialists would have to be trained, which is both time-consuming and expensive. That's why many companies turn to consulting service providers.

Today I'd like to take a closer look at one of these providers: Accenture plc. With currently more than 569,000 employees, the American company (headquartered in Ireland) is one of the largest and most successful strategy consulting firms in the world. So let's look at how the company came about and whether the stock might be something for dividend investors.

The history and business model of Accenture Public Limited Company

The story of today's consulting giant begins on May 30, 1885, when Arthur Edward Andersen was born in Plano (Illinois) as the fourth of eight children. His parents, John and Mary Andersen, were Norwegian immigrants who had come to the United States in 1882. Arthur's talent for mathematics showed early on. A stroke of fate, however, threw a wrench in the family's plans. Both parents died young, and Arthur was orphaned at 16. His four younger siblings moved in with relatives, but he and his three older brothers were now on their own. Fortunately, a coworker of his father's took Arthur under his wing. He got him a job in the mailroom of the Fraser & Chalmers Manufacturing Company and supported him financially. He worked during the day and took classes at night to finish high school. After that, he found a job in the comptroller's office of the Allis-Chalmers Company in Chicago and at the same time enrolled in business studies at the University of Illinois. After graduating, he became the youngest certified public accountant in the state of Illinois at the age of 23.

From 1907 to 1911 he worked as a senior accountant in Chicago at the accounting firm Price Waterhouse, but he soon realized that he wanted to build something of his own. So in 1913 he pooled his savings, bought the Audit Company of Illinois together with his colleague Clarence DeLaney and reorganized it as Andersen, DeLaney & Company. The young company quickly began to grow, as demand for auditing and accounting services rose sharply thanks to a change in the law. The United States Congress passed the first income tax law, which forced wealthy individuals and successful companies to keep accurate books. This law came at just the right time for Andersen, who could now expand his customer base. Soon he was working for well-known companies like Colgate-Palmolive, Parker Pen or International Telephone & Telegraph. The firm also made a name for itself with numerous utilities from the gas and electricity sector. In 1917, DeLaney left the company and it was renamed Arthur Andersen & Company.

The business kept developing excellently and new offices were opened across the country. Besides bookkeeping help, the firm also began offering financial and auditing services. In the 1950s, it helped many companies install their first computer systems, and the group's consulting division grew rapidly. Over time, however, internal conflicts between the auditing and the consulting branch became more and more frequent, until it was decided in the late '80s to split the company into two divisions. Only in August 2000 did the final separation and the IPO follow, and Andersen Consulting became Accenture Ltd. (an acronym of "Accent on the future"). Today, Accenture is one of the largest service companies in the world and offers consulting across a wide range of industrial sectors. All in all, it counts more than 6,000 clients in over 120 countries and also holds more than 7,900 patents.

How could Accenture develop in the future?

First, I'd like to briefly outline the consulting firm's business model once more. Accenture divides its business into the following five segments.

1. Communications, Media & Technology : Here the company helps its clients design and implement their digital transformation and develops comprehensive industry-specific solutions to seize new opportunities and achieve better results.
2. Financial Services: This segment covers banking, capital markets and the insurance business, and helps clients optimize their business and adapt it to new technologies.
3. Health & Public Service: This business segment works worldwide for payers and providers in healthcare, ministries and government agencies, public service organizations, educational institutions and non-profit organizations.
4. Products: As the name suggests, here the company supports its clients in optimizing various production steps - from development and production all the way to sales and marketing.
5. Resources: This segment serves the chemicals, energy, forest products, mining, utilities and other related industries.

Now let's take a look at the figures for the most recently published quarter (Q3 2021 - ended May 31, 2021). Total revenue for this period came in at 13.3 billion US dollars, an increase of 21 percent. Accenture also grew its profit in this third quarter by 24 percent compared to the prior-year quarter. It now stands at 2.1 billion US dollars, or 2.40 US dollars per share. If you look at the quarterly report, you'll also quickly notice that Accenture posted solid gains in all segments.

As mentioned in the introduction, the pandemic fueled the growth of the consulting industry. And I can't imagine this growth flattening out over the next few years - if anything, the opposite will be the case. You also have to say that Accenture is closely connected with so many different industries and companies and has valuable insider knowledge, so it should be easy to win over new clients. It's also a fact that existing clients will hardly switch to a competitor - after all, that process is always very time-consuming and expensive. All in all, I can very well imagine Accenture continuing to grow nicely over the coming years/decades and putting a smile on the faces of long-term investors.

What about the dividend?

For a long time, Accenture used its profits exclusively for its own growth. Only since 2006 has the consulting group shared its profits in the form of dividends. Since then, the company has managed to pay the dividend every year and raise it at the same time. Looking at the last 10 years, the dividend growth rate is a solid 11.2 percent (last 5 years: 9.8 percent). Considering the excellent share price performance, the current dividend yield of 1.0 percent is absolutely acceptable too. Last but not least, the payout ratio of 39.4 percent also gives the green light for future dividend increases.

Conclusion:
Over time, the consulting group Accenture has built itself a solid moat. More than half a million employees work every day to support corporate clients, optimize their business and make them fit for the digital age. I'm confident that the business will keep developing well in the future, which is why I'll add a few shares to my own portfolio at the next opportunity.