Stock and Dividend Analysis: H&R Block

It’s probably the rural Albertan in me, but I absolutely love Corner Gas. It is my go-to show for when I need to put something on in the background for a couple of hours.

In fact, I have some unknown streaming service (Tubi maybe? I dunno) on my TV just because I can watch Corner Gas on it.

If you’re unfamiliar, drop everything and go watch it. The best I can describe it is if Seinfeld happened in rural Saskatchewan. Episodes are about nothing, and in later seasons they actually start making fun of how it’s about nothing.

I bring up Corner Gas in a newsletter about H&R Block because one of the first episodes of the show involves a Revenue Canada representative visiting the gas station because he needs to see the books. Oscar Leroy — the former owner under investigation who passed down the station to his son, Brent — does his best to stick it to the evil TAX MAN. Meanwhile, the poor guy is just trying to do his job, and volunteers helpful tax information whenever possible to show he’s really a good guy.

The episode mostly mocks our relationship with taxes, especially rural Canada’s distrust of Ottawa. Because, for the average Canadian, taxes are a stressful time. They worry about the dreaded AUDIT without realizing that most folks are poor candidates for such an outcome and that branch of the government just doesn’t have the resources to go after anyone but the worst offenders.

So I pulled my best Charlie Munger impression and inverted my thinking. I decided to go long the tax man the best way I could and invest in North America’s number one assisted tax prep service, H&R Block (NYSE:HRB). That was back in 2021, which has been a successful investments. Here’s why I continue to think shares are attractive today.

The skinny

H&R Block pretty much owns the assisted tax prep service market. Sure, there are a million accountants doing a million different tax returns out there, but none have the brand recognition or massive footprint that H&R Block does.

The company has more than 9,000 company and franchise offices across North America and Australia, employing 60,000 mostly seasonal expert tax pros. The company also provides various banking services to small business owners, and it also owns Wave, a bookkeeping software provider. It also provides various tax-related financial services, offering things like refund anticipation loans for those who don’t want to wait a few weeks for their tax refund to come on.

Besides all that, Block also has the number two market share in DIY tax software. It trails Intuit’s TurboTax by a significant margin, but it’s still a legitimate player.

It also owns Block Advisors, which provides bookkeeping and payroll services for small business owners. That’s also a way for franchisees to keep some of their better employees around all year long.

The tax prep business is about as boring as businesses get. It grows by about 1% per year as the overall population grows. Tax preparers are also able to pass on price increases at about the level of inflation. Much more than that and they risk losing market share to DIY tax software.

H&R Block has a nice little niche in the market between DIY solutions and full-service accountants. A basic Block-prepared tax return will usually set someone back around $100, versus about $50 with software. But that’s much cheaper than a return prepared by an accountant — that’ll often set you back $500+, and that’s for a simple return — which comes with about an equivalent level of service as Block offers. In fact, H&R Block will seasonally employ a lot of retired accountants who work from January through April, make a little scratch, and then golf for eight months. So the consumer gets an experience much closer to what an accountant provides for a fraction of the price.

The knock against H&R Block for most of the last 20 years is the rise in DIY tax software. Why go to H&R Block, the argument goes, when you can download the latest TurboTax update and do your taxes that way? Especially when Turbo Tax offers the option for professional help?

There are a few reasons one might go for the full-service route. Taxes are a BIG DEAL to a lot of the population, and they feel better having an actual person do it. Others want access to their refunds early, a service Block has offered for years. Assisted tax returns are also the laziest way to get your taxes done, and so many will default to that option. And finally, Block’s returns are generally much cheaper than what your local accountant would charge. So they win a lot of that business.

Ultimately, this obvious bear thesis hasn’t come true yet. H&R Block continues to slowly grow the business over time, using a combination of population growth and annual price increases. It also has growth avenues that aren’t discovered without a relatively deep analysis of the company, including the growth of its other businesses and its acquisition of franchises at attractive multiples.

Put it all together, and long-term growth has been pretty solid. Since fiscal 2016, top line revenue has increased by 24%, rising from $3.04B to $3.77B. That doesn’t seem too impressive, but this is a business that quietly gets all the more efficient each year. Operating income is up by 34% and earnings are up 63%.

The real growth is in EPS. Block has been aggressively repurchasing shares for the better part of two decades, which has helped supercharge earnings on a per share basis. In 2016, the company earned $1.59 per share on a normalized basis. That number was $4.66 per share in 2025, and analysts expect EPS to increase to $4.95 in 2026 and $5.47 in 2027. That works out to about a 10% long-term growth rate.

Yeah kids, that’s right. H&R Block is actually a growth stock. And it’s trading for a value price.

The opportunity

The opportunity here is fairly straightforward. You’re buying a company that has grown EPS by 10%+ annually for the last decade at just 8x forward earnings. 

That’s it? That’s it. The thesis doesn’t have to be very complicated to work.

So, why is H&R Block so cheap? My view is the stock is suffering because investors think it’ll somehow get disrupted by AI.

Someone apparently taught an AI robot to do their taxes, and suddenly H&R Block shares fall by 25%.

I’m going to take the opposite side of that argument. I’d say that AI is actually good for H&R Block. Agents can use various tools to check over taxes for errors, or to make the whole process more efficient. Besides, the average H&R Block customer barely knows what machine learning is. There’s zero chance they’re going to have the patience or the expertise to use AI to do their taxes. The average tech bro could potentially do it, but these people aren’t H&R Block customers in the first place.

Meanwhile, Block absolutely gushes cash. Instead of looking for big acquisitions, it has a simple capital allocation strategy. It:

• Pays a consistently increasing dividend

• Repurchases a ton of shares

• Buys franchises back at attractive valuations (2-4x EBITDA is common)

Most cash is returned to shareholders, which is the main driver of expanding EPS. The share buyback truly is a thing of beauty, but it gets constantly poo-pooed by investors who don’t understand its power.

Dividends and buybacks

H&R Block has quietly repurchased nearly half of its shares outstanding in the last decade.

In 2016, the company averaged about 250M shares outstanding. After years and years of dedicating a big chunk of its earnings to share buybacks, it has just over 126M shares outstanding today. That’s a decline of close to 50%.

Simple math would say that earnings increase by 50% after a 50% share buyback. But that math understates the true impact. Such a buyback actually doubles earnings on a per share basis.

Add in the company’s growth — which admittedly is just okay — and we get a scenario where EPS has increased by some 200% over the last decade.

Plus, today’s share buybacks are being done at an attractive price. Remember, shares trade for just over $40 each today, but 2026 earnings are projected to be $4.95 per share. That means the company is getting about a 12% return on each share repurchased. Block should continue to buy up as many shares as possible at this valuation.

Moving onto the dividend, Block delivers here too. With the exception of 2020 when the company cut the payout, it has consistently increased the dividend. From 2016 through 2025 the quarterly dividend more than doubled from $0.20 per share to today’s level of $0.42 per share. That works out to about a 7.5% annual increase, well above the rate of inflation.

Dividend growth has accelerated in the past couple of years, too. In 2023, the company raised the quarterly dividend from $0.29 to $0.32 per share. The next increases were a 17.2% hike to $0.375 per share, and then a 12% increase to $0.42 per share.

Today’s payout of $1.68 per share annually works out to a 4.2% yield. Combine that with a payout ratio comfortably under 35% of 2026’s projected earnings, and I see steady dividend increases in the future. It’s a nice combination of current yield today and growth in the future, exactly what we’re looking for around here.

Dividend safety: High
Dividend growth potential: 7-10%

The bottom line

I won’t bury the lede. I’ve been buying H&R Block shares lately. I think it’s a terrific value at the $40-$45 range.

Once every few years the market decides that the company is about to die a slow death. DIY tax preparation software will kill it. Or folks will switch to other forms of tax prep in COVID, with no hope that they go back. Or, as we’re seeing now, that various AI tools will do taxes for free.

I believe this business is stickier than the bears give it credit for, and will continue to chug along. It’ll never be a huge grower again, but that’s okay.

Meanwhile, the company keeps allocating capital in an intelligent way. Block’s market cap is just over $5B, which is miniscule for a brand that is so well known. I believe that eventually someone will come along, offer a generous premium, and take the company private. It’s the perfect business for someone like Berkshire Hathaway, except it’s just not big enough to move the needle at Berkshire. They buy it, allow current management to keep doing their thing, and pocket all the cash instead of allocating it to buybacks/dividends.

Ultimately, it comes down to this. H&R Block is cheap at 8x earnings. And it’s extremely cheap if earnings keep growing by double-digits each year. The thesis really doesn’t have to be much more complicated than that. Good things happen when you buy good companies at a cheap valuation.

Your author owns H&R Block shares. Nothing written above is financial advice. It is for research and entertainment purposes only. Consult with a qualified financial professional before buying or selling any stock.