We recently compiled a list of the 7 Best Stocks to Invest in for Medium Term. In this article, we will look at where Accenture plc (ACN) ranks among the best stocks to invest in for the medium term.
On September 18, the Federal Reserve reduced its policy rate by 50 basis points, lowering it to 4.75%–5.00% from 5.25%–5.50%. Following the announcement, stocks surged, with the broader market hitting a new intra-day all-time high and closing at its 39th record of 2024, marking the first since mid-July. The index has risen over 20% since the beginning of the year. The interest rate reduction has created new opportunities for investors, signaling a shift towards a more supportive monetary policy intended to boost economic activity. Lower interest rates generally result in reduced borrowing costs, encouraging both business expansion and consumer spending. This fosters a favorable environment, making medium-term investments, typically ranging from 3 to 5 years, more appealing.
To effectively execute this strategy, investors should evaluate several key factors in the companies they select. These include the stock’s performance over the past year, profitability, sales figures, debt levels, price-to-earnings ratio, and dividends. Additionally, assessing revenue growth and payout ratios can provide further insights.
Dividend stocks are often seen as good choices for medium-term investments, providing investors with passive income while they hold the stock. In addition, dividend-paying companies can be a smart investment during times of market volatility. A report by Hartford Funds showed that from 1940 to 2023, dividend income contributed an average of 34% to the total return of the broader market. The report also highlighted that in decades with total returns below 10%—such as the 1940s, 1960s, and 1970s—dividends made a significant impact on overall returns.
Dividend growth is the most favored approach within dividend investing, as it boosts investors’ income over time. Kirsten Cabacungan, an investment strategist in the Chief Investment Office for Merrill and Bank of America Private Bank, emphasized the significance of dividend growth strategies in investment planning. Here are some comments from the analyst:
“Generally, it’s larger, more mature companies that return capital to their shareholders in the form of dividends. Companies that have consistently increased their dividends tend to be more stable, higher quality businesses, which historically have weathered downturns and are more likely to have the ability to pay dividends consistently.”
A company’s dividend payout ratio is a crucial measure of its ability to maintain dividend flexibility. Firms that allocate most or all of their earnings to dividends may struggle under competitive pressure, as their cash flow might not be enough to sustain operations. A report by Nuveen highlighted that, historically, stocks with the highest payout ratios haven’t delivered the best long-term results. Instead, companies with moderate to moderately high payout ratios have tended to outperform over the past two decades among dividend-paying stocks. With this, we will now discuss some of the best stocks to buy for medium term.
Our Methodology:
For this list, we used a Finviz screener to to find dividend stocks with an average revenue growth of over 10% over the past five years, highlighting companies with consistent sales growth. From that selection, stocks with a five-year average payout ratio of under 40% were chosen, indicating a strong cash position. The final list includes 7 companies with the highest number of hedge fund investors, based on Insider Monkey’s Q2 2024 database.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A team of data experts gathered around a computer monitor analyzing customer data.
Accenture plc (NYSE:ACN)
Number of Hedge Fund Holders: 68
5-Year Average Annual Revenue Growth Rate: 10.11%
5-Year Average Payout Ratio: 38.1%
Accenture plc (NYSE:ACN) is a multinational professional services company that offers technology, and outsourcing services to its consumers. The stock is down by over 3% since the start of 2024 because the consulting industry is currently facing challenges, mainly due to a reduction in spending by numerous businesses. Due to the ongoing situation, It’s not surprising that the company reduced its revenue forecast earlier this year. The company now anticipates a maximum revenue growth of 2.5% for the fiscal year, a significant drop from the previous projection of 5%.
That said, analysts are not completely bearish on Accenture plc (NYSE:ACN), believing that several factors could still play in the company’s favor. Aoris Investment Management also highlighted this in its Q2 2024 investor letter. Here is what the firm has to say:
“The largest detractors for the quarter were Accenture plc (NYSE:ACN) and CDW Corp, which both fell by around 14%. Accenture and CDW are currently experiencing flattish years in terms of revenue and earnings growth. This follows a period of post-pandemic elevated demand. We believe both companies continue to gain market share.
Accenture is the world’s largest IT outsourcing and consulting company. While earnings in its quarter ended May was essentially flat, we were very encouraged by underlying demand. This demand strength is reflected in a 22% year-on-year increase in client bookings for the quarter. Further, the number of $100m+ contracts signed in the nine months to May was 92, up from 85 in the same period a year earlier. All this bodes well for Accenture’s revenue and earnings in the next few years.”
In fiscal Q3 2024, Accenture plc (NYSE:ACN) reported revenue of $16.4 billion, which fell slightly by 0.6% from the same period last year. The company reported impressive new bookings exceeding $21 billion, reflecting a 22% increase compared to the previous year. It further advanced its strategy of becoming the preferred reinvention partner, securing 23 additional clients with quarterly bookings of over $100 million, bringing the total to 92 for the year so far.
Accenture plc (NYSE:ACN)’s cash position was also strong. The company’s operating cash flow and free cash flow for the quarter came in at $3.14 billion and $3.02 billion, respectively. It also returned $811 million to shareholders through dividends, which makes it one of the best stocks to buy. The company has been growing its dividends consistently since 2005. It currently pays a quarterly dividend of $1.29 per share and has a dividend yield of 1.54%, as of September 19.
Accenture plc (NYSE:ACN) was a popular stock among hedge funds at the end of Q2 2024 with hedge fund positions growing to 68, from 57 in the previous quarter, according to Insider Monkey’s database. These stakes are collectively valued at nearly $3.7 billion. With over 2.7 million shares, Generation Investment Management was the company’s leading stakeholder in Q2.
Overall, ACN ranks 7th on our list of the best stocks to invest in for medium term. While we acknowledge the potential of ACN as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ACN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. This article is originally published at Insider Monkey.