ACN Deep Dive: AI Isn’t Killing Consulting, It’s Reinventing It

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Dividend investing isn’t about settling for slow growth. To grow your income, you need to own growing companies, and the real wins come when you find them at a discount. The trick is seeing past the headlines and recognizing value even in businesses the market assumes are at risk of disruption. 

In this milestone 50th episode, Greg kicks things off with a Wall Street Journal investor quiz that highlights the timeless power of compounding. From there, the focus shifts to Accenture ($ACN), the world’s largest consulting firm. Despite short-term headwinds from government budget cuts and fears of AI disruption, Accenture’s strong balance sheet, growing dividend, and unique position in the consulting landscape make it a compelling candidate for long-term dividend growth investors. Greg breaks down the numbers, the risks, and the upside scenario if Accenture turns AI into an accelerant for its business model. 

Topics Covered: 

 03:13 – The century-long compounding lesson: Coca-Cola, Nvidia, Altria, and Apple
 05:15 – Berkshire Hathaway’s glitch and 60 years of outperformance
 07:26 – Introducing Accenture ($ACN): A long-held but renewed idea
 08:48 – Why the stock has fallen from $400 to the mid-$200s
 10:39 – AI disruption fears: risk or opportunity?
 11:33 – Morningstar and Value Line’s perspectives on Accenture
 14:34 – Historical dividend, earnings, and revenue track record
 16:25 – Margins, balance sheet strength, and net debt position
 19:03 – Return on invested capital: consistent discipline over decades
 20:08 – Acquisition strategy: why Accenture has succeeded where others fail
 21:59 – Conservative debt issuance and bond market confidence
 24:56 – Profitability metrics: margins remain steady through cycles
 26:14 – Accounts receivable and customer credit strength
 27:41 – Why the federal contract risk looks like a buying opportunity
 28:10 – The 10-year dividend model and forward growth scenarios
 30:01 – Potential upside if AI becomes a growth driver
 31:45 – Valuation: PE, price-to-sales, and free cash flow yield at decade lows
 32:48 – Risks: client concentration, acquisitions, regulation, and AI disruption
 34:04 – Final thoughts

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Transcript

[00:00:11] Greg Denewiler | Show Voice: 

This is Greg Denewiler, and you are listening to another episode of the Dividend Mailbox, a monthly podcast about dividend growth. Our goal is to stuff your mailbox full of dividend checks. When they grow over time, a funny thing happens, you create wealth.

Welcome to episode 50 of the Dividend Mailbox. In this episode, we're going to start out with a quick look at—last week the Wall Street Journal did a quiz for investors to see how much they know about the market. There are a few questions in there that we thought were very relevant to what we do. We'll hit those and then we'll go into a new idea that we have. It's one that we've actually owned for a long time, but we have not put any new money in this thing for years. The market is constantly evolving, things change, and this company is back on our radar. So for those of you that think dividend investing is boring, this one has a major growth component to it, or it definitely has in the past.

Before we do that though, I want to go back to something we mentioned in the last episode. We offered to do a review of your portfolio based on how it stacks up to dividend growth from our perspective. Several of you took us up on it and if you'd like to get a quick overview of your own portfolio, just email it to us. You don't have to include your dollar amounts, but we do need the stock symbols. It would help if you give us the weightings, otherwise we will weight it all equally. We'll rate it one to five, and we'll send you a short report that highlights the big picture. Just remember, this is not a detailed recommendation. It has no reflection on how your portfolio may or may not perform in the future. It's just simply to help give you a few things to think about. So if you wanna send a portfolio to us, email it to dcm.team@growmydollar.com. And with that, we will get into episode 50.

To start this episode out, I thought we'd have a little bit of fun here. Just recently, the Wall Street Journal had a quiz to test your knowledge of the stock market, and I thought, “Eh, I'll take this real quick and just remind myself of how smart I am,” and lo and behold, let's just say I did not get a perfect score. But what I'm gonna do is just give you a couple of the questions because they relate directly into what we've talked about in the past. 

Incidentally, question number one was: We're putting you in a make believe time machine and sending you back a century to 1925 with $1,000. You have to invest it in one company, but you don't have to have invest it immediately. You can hold onto it and you can wait for decades if you want for the proverbial fat pitch. They gave you four choices, you can only pick one. The first one is Coca-Cola. The second one is Nvidia, the third one is Altria, and the fourth one is Apple. Well, technology has been on fire recently, so it's very easy to think, well, heck, Nvidia is the most valuable company in the world. It's crossed $4 trillion in market cap. It must be Nvidia. Well, actually it's not, the answer is: It's Altria. The thing that comes up is it's those dividends that accumulate over time that create all the magic. Just how well did it do? You could have put 1000 in it in 1925. It was around back then, and if you would've held it and reinvested everything and held onto the spinoffs, your $1,000 would've grown to $3 billion. Now, I haven't verified this. I do know that it's been a really strong performer, but we're just gonna trust that the Wall Street Journal is right. So all the dividends, they've spun off several companies, add all that together, and it's been a huge compounding machine. Even though Nvidia has the largest market cap, you gotta remember something that pays out dividends over an an extremely long term can surpass market cap. 

And then looking at their second question, it was—you may or may not know, actually, I had vaguely remembered this, but last June there was a glitch on the New York Stock Exchange and for a brief period of time, Berkshire Hathaway dropped by 99%. The question is: If you unfortunately sold on that glitch and you saw your investment decline by 99%, and you had been in it for a total of 60 years from when Berkshire Hathaway first started trading as a public company… Their questions are: Would you have 95% less than people who just invested in an index fund, 90% less, would you have half as much wealth, or would you still have 40% more than an index fund investor? Well, the answer is—because Berkshire Hathaway has actually returned 5,500,000.0% trading back 60 years ago, you're still way ahead of the index. Again, things on the surface are not always as they seem.

Both of these questions, for the most part, had nothing to do with technology. Obviously Altria is pretty much as far away from technology as you can get. Berkshire Hathaway for the longest period of time, most of their growth record was built before Warren Buffet ever invested in Apple. So I just thought that quiz was just a great reminder of compounding and cash flow, but we're gonna move on and we're gonna look at how we're gonna try to build wealth here in the future. And this definitely fits into long-term dividend growth.

The company that we're gonna talk about today is Accenture. It is the largest consulting firm in the world, actually by quite a bit. In full disclosure, this has been a personal holding since June of ‘05. It has performed relatively well for the last decade or more, but really never looked at it very seriously because the stock was always expensive. So I have not put any new money in it in quite a while. It is in some customers accounts, but it's not a wide holding. However, the stock has dropped from the low 400s all the way into the mid 200s. We'll get into this later, but the biggest reason apparently is that they do have some government contracts. They were one of the first casualties of DOGE cuts from the government's budget. It was 8% of their global revenue and 16% of American revenue. Then on top of that, AI has impacted some smaller consulting businesses. There's some fear that there's gonna be some short-term weakness here, but one of the great things about this pick for this episode is they have a very wide diverse business.

We first bought it in June of 2005 for $23, and I have since received virtually the entire amount of my original investment in dividends. It has been a great dividend investment. You know, it started out at about a 3% dividend yield, and incidentally, this was purchased about the same time Microsoft was. It was a very similar 3% yield also. Both of these have had some really great dividend increases because their businesses have just been phenomenal. So Accenture traded up to a high of a little above $400 about a year ago, and right now it has come back down to, currently it's trading about $239. So it's come down quite a bit, which has brought it down to a point where we get to talk about it 'cause the current dividend yield is just below 2.5%. It's a little lower than what we like to try to buy, but it is in our, what we like to call sweet spot. And as you will see, it's probably not gonna stay at two and a half percent for very long. 

So one of the things that I must confess in thinking about this, as I have seen the price coming down, I read a comment and this is the danger when you read comments in—I can't even remember where I read it. It might have been something in Baron's, but I could be wrong. But basically it was the whole mention of AI and how consulting could be in for a rough go because AI just has the ability to come up with answers extremely fast for a lot of different topics.

So naturally, in consulting: “Hey, is this gonna be a problem?” I was looking at Accenture thinking, you know, it's come down, it's still more than 10 times what I paid for it. So even though it's come down a lot, I've had a huge gain on it. Maybe I should just take my money and run, because if AI does have a serious impact on the business, it's probably going to go a lot lower.

Well, I wanna kick this off and some of this, I'm gonna read word for word because it's hard to summarize this. I wanna tell you right up front, Morningstar and Value Line, I'm gonna refer to both of them. These are not the end all. However, it's always great to get a third party opinion. It saves a lot of time and can make it easier. Well, Morningstar basically says: 

“Accenture is the only IT services company that has the capability to deliver end to end business solutions. If a brick and mortar bank is planning to launch a mobile banking app, Accenture is ready to assist it through the entire process, which includes overarching strategy design, IT system integration, custom application development, new service marketing, and digital infrastructure management. Without Accenture, customers need to sort different services from several suppliers, potentially leading to project delays and cost overruns. We believe Accenture's unique capability of providing integrated digital solutions across consulting and managed services boosts the company's image as a flagship IT services provider and reinforces its customer relationship with Fortune 100 companies.

I mean, they go on talking about, “Yeah, for the, for lower end services, AI potentially is gonna have an impact and probably will have an impact. But on higher end services, which is pretty much where Accenture lives, AI in their opinion, is potentially gonna be better for their business because this can get so complicated tying it all together. It can be extremely challenging. That in a nutshell is Morningstar's opinion on Accenture's future. And just because it's not that long, I'm gonna read value line's opinion. Value line says: 

“Accenture has a clear path forward with solid revenue growth opportunities over the long run. The business has been aggressively acquiring small companies to expand AI capabilities and financial offerings. Management is extremely bullish on AI due to secular trends. Accenture and Nvidia have partnered to build digital replicas of warehouses, enabling the simulation and refinement of automation processes with AI and robotics before real world implementation. 

So I think that sums up that I'm not too worried about AI taking out Accenture's business. In fact, it could actually reinvent it, and lo and behold, if you go to Accenture's website, there it is. They've rebranded their business and it's about reinvention. 

Just from that overview, we will now start to look at: “Okay, where's Accenture and why is it potentially a great long-term dividend growth investment?

Well, let's start with what it's done. So you go back 10 years, the dividend has grown by 177%. Last I checked, 177 is a bigger number than 100, which is our threshold. Last five years, it's grown 76%. The dividend's grown faster than what we hope to get. We talk about this over and over, but in order to get dividend growth, you have to have a growing revenue company and earnings company.

Well, earnings have grown in the last 10 years 153%. Revenue has doubled in the last 10 years, and it's grown in 20 years, from $15 billion to $65 billion. You've got earnings growth that's keeping up and that allows you to keep growing the dividend faster. Revenue has grown also, so if you think you can't get a growth stock, here we are. Accenture, without a doubt is a growth stock. 

In this case, the dividend payout ratio was 43% 10 years ago. Right now it's 45%. That roughly is where it lives, it fluctuates a little bit. We're gonna get into the debt here in a little bit, but they, for all intents and purposes, have no debt. From that standpoint, there's no real immediate threat to any issues with the dividend. 

If you look at margins, remember that I said 20 years ago, revenue was $15 billion, now $65 billion. They've done that and they've actually increased their profit margin. It's up to 11%. Five years ago it was 10%. 10 years ago it was 9%. Gross profit margins is 32% and 10 years ago they were 30%. So they've been able to grow the business and maintain the profitability, and that is a huge plus. 

If we look at shares outstanding, they really haven't done much as far as buying back stock in the last 10 years. They bought back a lot from 20 years ago to 10 years ago, but that's a little bit of a long story.

The short version is Accenture was spun out of, I believe it was Arthur Anderson, right before they went chapter 11, I believe. They were involved in the Enron scandal and Accenture was spun out. They had a bunch of different classes of stock that was basically given to management. So they bought back about half their stock, but most all of that was a special class. If by chance you go back and look at those numbers, it's not because they wanted to aggressively buy back stock. They just basically wanted to get rid of that class. 

They've been very consistent in how they've managed the balance sheet. They have $5 billion in debt, but they have about $10 billion in cash. They have zero net debt is the bottom line, and for all intents and purposes, they have not had any debt for more than 20 years. So you've had a lot of growth without debt and without issuing stock. They've done it all internally. 

You might ask, how could they do that? Well, you have return on invested capital numbers that for years ran around 30%. As the balance sheet got bigger, it started to decline. So as the asset base grew from back in 2010, about $12 billion in assets up to the last full year ending in 2024, they have roughly $56 billion in assets, they still have 20% return on invested capital. It's a very profitable business.

And here's the more important thing, and I'm gonna get to this next. One of the things that we always look for is the incremental return, meaning that as the balance sheet grows, on that part of the business that is the growth piece, is the return of that as good as the core business? From Accenture's standpoint, since 2007 to 2024, which is a fairly long stretch, the incremental return on invested capital has been 20%. They have continued to be disciplined as they've grown the company. 

Now here's something that is a little incredible 'cause you don't see this very often, if you've listened to us at all. You know, we are very leery of companies that do a lot of acquisitions, and in the case of Accenture, they have done a lot of them. I just read Morningstar and ValueLine talking about how they continue to tuck in these small acquisitions, bringing in expertise in different areas for their consulting business. Well, in the most recent quarter of 2025, they have total assets of $63 billion. Of those assets, $24 billion is goodwill and intangibles. Stockholders' equity is $31 billion. Normally, if 77% of stockholder equity is goodwill, I'm extremely nervous. A lot of companies will have different degrees of debt, and a lot of 'em will use a lot of debt to acquire. Don't have that problem here. You just have the issue: “Well, do they dilute the balance sheet?” We've already been through that. The answer's no. They've done a really good job integrating these businesses and getting the value out of them, so I think we're in good shape. 

Another way to look at these acquisitions and one reason why there's been so many of them—this is back to their business model. Morningstar calls it a wide moat, and clearly, the way Value Line talks about them, they have an extremely wide moat. The Dividend Mailbox can call them and ask for some consulting help, which we're not gonna do because we're not that big, but we can call them. United Health can call them to help straighten out their mess. The federal government calls them; anybody in any industry basically can call these guys. And they can come in, start to finish, and help solve your problem. They are the only consulting company out there that can do that, and I think that's one reason why they've been able to hold their profitability through all these acquisitions.

However, going back to the debt piece, one might ask why do they even have any debt when they can pay it all off right now? I don't even remember when I first bought it if they had debt then, and I'm not even going to look because at that point it doesn't matter. But they have not had any debt for a long time. They issued $5 billion of debt in November of ‘24. You might wonder, well, why? I guess the other way to look at it is, why not? They have $1.1 billion in 2027, 3.9% interest. $2 billion in 2029, 4.05% interest. They have $1.2 billion in 2031, 4.25%, and $1.5 billion in 2034, which is at 4.5%. If you remember those profitability numbers that I talked to you about, if you're earning more than double, triple, what your interest rate is, it sounds like you should borrow money all day long. But they've kept it pretty conservative—$5 billion. Again, if you look at total debt outstanding, the number's gonna be a little higher than that, partly because they have $1.2 billion of letters of credit outstanding. And then they have another small commercial paper outstanding of about a $100 million.

Well, this is, uh, this is just a point to remember. If you've got a company that's not doing very well and the stock's going down—and I just happened to look—it's like, “All right, how is this debt trading? Is the market getting nervous here?” I mean, if they're gonna lose some government contracts, if AI potentially is gonna have a major impact on the business of Accenture—this is a broad statement, so take it for what it's worth—debt investors, institutional-wise, they tend to be a little more sophisticated, or sometimes they're considered smart money. That's a broad term, and somebody will probably beat me up for that, but whatever. Usually, the debt will give you an indication that something's not right if they're starting to discount the debt and investors are truly getting nervous, besides just momentum trades. If you look at the debt of Accenture, all four issues, the closest maturity trades at par. Next one's 99.6. The next one is 99.2. The farthest one out is 97.4. Par for a bond is considered to be 100, so these discounts are extremely small. It could be interest rates moving a little bit. It could be credit spreads changing slightly, but since Accenture is rated AA-, I doubt that there's really any credit risk there. 

And now just to go a little deeper into quarter by quarter, just to see: “Alright, is the business showing cracks here?” If you just look at the gross profit margin, the quarter ending in December of 2024, it was 33%. You go back, middle of last year, it was 33%. You go back to the end of 2023, 33%. 12/31/2022, it was 33%. So they've held margins very steady. 

Operating income in the quarter ending in December 2024 it was 17%. It actually has gotten a little bit better. You go back to 3/31/2024, it was 13%. September 2023, 12%. It was, in December of 2022, 16%. It does fluctuate a little bit, but basically it has held very steady. So from that standpoint, I think we're in good shape. 

Another thing to just be careful with that I've learned over time, what they could do is go out and start bringing in some customers that are not as creditworthy. One of the ways you can pick that up is: “Okay, where do accounts receivable stand as a percentage of assets? Is the number growing, which would tend to indicate that they've got customers that aren't paying as fast?” Well, if you look at December of 2024, accounts receivable of assets, 21%. That was the lowest number going all the way back to December of 2022. If you look back in December of 31, 2022, it was 27%. The average over that period was 24.5%. So all indications are that their customer base is as strong as it's been in the past.

Looking at all the numbers, Accenture continues to be a well-managed, extremely strong balance sheet. In the near future, there could be a crack in some of these federal contracts, but we've seen that 8% of global and 16% of American revenue is in federal contracts. The reality is as large and as complicated. As the federal government is and just large corporate environments in general, it seems highly doubtful that long-term the government's not gonna need, if anything, as much or more consulting help as what they've had in the recent past. But that is creating a buying opportunity. It's already created one, and if it gets any better, I would continue to add to this thing.

So with that, we will now move to why buy it? Why are we looking at it now? Well, I wanna hit this again, and we'll keep hitting it. The first place to start is our simple little 10-year model. Payout ratio for the last 10 years has averaged about 45%, and that's right about where they are right now. The dividend currently is $5.92. If this dividend grows by 7% a year, then in 2034, it's going to be up to just under $11. If the dividend is $11 and if they continue to pay 45% out, where do earnings have to be? Well, they have to be at $24. If they continue to remain at that 45% payout, how likely is that? There's no guarantee, obviously, but Value Line and Morningstar both put estimates out at 2029 that they're going to earn about $17. That's up from their current earnings through 2024 of $11.44. If they're on that track, they're in good shape because in order to go from $17 to $24 over the next five years, they only have to grow at 7% a year. The past 10 years, they've had annual earnings per share growth of 9.7%. So 7% should be extremely attainable. At a 7% dividend growth rate, and it's up to $11 in in 2034, and it has a 2.5% yield (same yield as where we are now), without compounding, you've got a return of about 120% of your money. 

Value Line actually estimates their dividend growth through 2029 to be about 10% a year. If the dividend were to grow 10% a year out to ‘34, the dividend would be up to $14. At a 45% payout, that's $31 for earnings. That means earnings have gotta grow almost 13% a year. It's possible, but we're not going to bank too much on that. The good news is all we need is seven. 

Now, are we going to invest for this? No, but here's the potential upside. For probably a decade, the stock traded down in that range of about 1.5% to even below. It got as low as about 0.5% on the yield side. If you get a dividend of $11 in 10 years, and the yield drops back down to 1.5% because AI has actually been a growth story for Accenture, the stock goes from $240 to $733. 

If the dividend does grow by 10% a year and it hits $14 in 10 years, if you have a 1.5% yield, the stock is $933. It's just simple math. 

We'll see. Again, it's not why we're pitching this story, but as I'm kind of thinking on the run here, why not go to a growth story? If Accenture actually does convert AI into a growth story for their more sophisticated clients, which you can only imagine how complicated it's gonna be to tie all this stuff together. We think it's just another great dividend growth story to have in our portfolio. 

So back to why buy it? Usually the stock trades at at a pretty high multiple. The PE is usually above 30x. The five-year average has been 29x. Right now, the stock trades at a PE of 19x. The last time we were below 19x was in 2017. Historically, the stock is cheap. 

If you look at price to sales, it's at a near 10 year low, and right now it's 2.2x sales. It's down from over 4 in the last several years. From just simple valuation there, it's cheap. 

If you look at free cash flow, they have about $10 billion in free cash flow. The market cap right now is just below $150 billion. That is 6.7%. You have to go all the way back to 2012 to buy it at a free cash flow yield that's this cheap. That's the number we love to see because really what that is, if you won the lottery—of course there's no lottery large enough that could pay you enough money to buy the entire company—but if you could, you had $150 billion and you bought this company, you got $10 billion coming out in free cash, that's a 6.7% yield and it's growing. Sounds like something I wanna own. 

So, moving on, what can go wrong? Well, first of all, approximately 41% of their earnings come from their top 10 clients. So there is some concentration there. Then there is acquisition risk, but we've already addressed most of that issue. They have a good track record of acquiring and integrating.

There's AI and technology disruption. But again, that's part of our story, why we think this is actually potentially gonna be a positive for them. You could say there's regulatory and compliance risk. There's always the chance that, you know, data privacy issues or having one company that's— I don't think you can use the word monopoly here—clearly they, they are perceived to be the only real company that has solutions from beginning to end for pretty much any company or government out there. Could that be potentially broken up? It’s possible. IBM's a big competitor, but they are pretty much more technology-driven. I mean, those are probably the quick highlights. There's always risk and a lot of times you just don't know where it is yet. 

So that's basically our look at Accenture. We think that a lot of the recent weakness has come from issues that ultimately will be resolved. We've had a somewhat small position in it for a long time. As I said, I haven't put any new money in this in years, but it's back on our list. We're accumulating it. I will just tell you, it won't be a full position yet because we always like to leave room. There is headline risk there of short-term downside, and then there's always economic risk. But I will tell you in the past, they have managed recessions relatively well. 

You never have a perfect situation; there's always something. But in this case, we think with how much the sock has declined and what it's valued at right now, and the growth prospects going forward, we think it's a prime candidate to be your 10-year hold or maybe longer.

If you enjoyed today's podcast, please leave us a review and subscribe if you would like more information regarding dividend growth or our investment strategy. Please visit growmydollar.com. There you will find previous episodes and also our monthly newsletter. If you have any questions or anything to add to today's episode, please email ethan@growmydollar.com.

Past performance does not guarantee future results. Every investor should consider whether an investment strategy is right for them and all the risk involved. Stocks, including dividend stocks, are volatile and can lose money. Denewiler Capital Management may or may not have positions in the publicly traded companies mentioned herein.