Is H&R Block (HRB) a Value Trap?
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Price: $35.89 -3.55%
Overall Analyst Rating:
SELL (= Flat)
Dividend Yield: 4.4%
Revenue Growth %: +3.6%
Overall Analyst Rating:
SELL (= Flat)
Dividend Yield: 4.4%
Revenue Growth %: +3.6%
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Reuters analyst Michael Tarsala say that H&R Block (NYSE: HRB) may not be the cheap dividend play that it seems to be, and is a good example of why these plays are not always cheap.
The reason that investors are jumping into H&R Block is that its P/E is now 7.8 times, which is significantly lower than its peers and well off the stock's historical average.
"There is renewed interest in H&R Block as a cheap dividend play," Tarsala said. "These types of plays have become more popular in the past two months, with equities offering their strongest yields in 15 years relative to bonds."
An additional attraction for investors when it comes to H&B Block is that its dividend yield is 4.6 percent, well ahead of its tax service peers. The stock is also technically oversold according to Tarsala.
Some signs do crop up according to Tarsala that the company’s stock may be a value trap, including that of the top dividend payers in the U.S., H&R Block has one of the highest 5-year CDS premiums relative to its triple-B rated peers.
Other concerns include that the company’s Z spread is on the rise, which could be an indication of increased liquidity and credit concerns.
Worries have also mounted in recent months that more mortgage issuers might be forced to buy back mortgages they generated as a result of breached warranties and legal representations. H&R Block started nearly $100 billion in subprime mortgages from 2005 to 2007 through a unit that it no longer owns.
Three quarter off those loans were sold off to banks and H&R Block set aside $250 million for putback expenses, and the potential for putback activity remains an overhang on the company going forward. The company said that it has $188 million of the funds left and that there is no need to increase reserves for putbacks at this time.
Shares of H&R Block are up 4 cents to $12.94 in midday market movement on Wednesday.
The reason that investors are jumping into H&R Block is that its P/E is now 7.8 times, which is significantly lower than its peers and well off the stock's historical average.
"There is renewed interest in H&R Block as a cheap dividend play," Tarsala said. "These types of plays have become more popular in the past two months, with equities offering their strongest yields in 15 years relative to bonds."
An additional attraction for investors when it comes to H&B Block is that its dividend yield is 4.6 percent, well ahead of its tax service peers. The stock is also technically oversold according to Tarsala.
Some signs do crop up according to Tarsala that the company’s stock may be a value trap, including that of the top dividend payers in the U.S., H&R Block has one of the highest 5-year CDS premiums relative to its triple-B rated peers.
Other concerns include that the company’s Z spread is on the rise, which could be an indication of increased liquidity and credit concerns.
Worries have also mounted in recent months that more mortgage issuers might be forced to buy back mortgages they generated as a result of breached warranties and legal representations. H&R Block started nearly $100 billion in subprime mortgages from 2005 to 2007 through a unit that it no longer owns.
Three quarter off those loans were sold off to banks and H&R Block set aside $250 million for putback expenses, and the potential for putback activity remains an overhang on the company going forward. The company said that it has $188 million of the funds left and that there is no need to increase reserves for putbacks at this time.
Shares of H&R Block are up 4 cents to $12.94 in midday market movement on Wednesday.
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