I love investing for how democratized it is.

It levels the playing field in so many ways.

A great investor needn’t be be born with gifts such as an extremely high IQ, impressive athletic ability, or even good looks.


A great investor merely needs to be able to identify terrific businesses, buy shares opportunistically, and be patient.

Too many people want to overcomplicate successful long-term investing.

But it really can be that simple.

I’ve taken this simplicity to heart, allowing it to guide the building of my FIRE Fund over the course of more than 10 years.

That’s my real-money stock portfolio, and it produces enough five-figure passive dividend income for me to live off of.

Indeed, dividend income has been covering my bills for years.

In fact, I quit my job and retired in my early 30s.


By following the steps I’ve laid out in my Early Retirement Blueprint.

Let’s circle back around to the “terrific businesses” aspect for a moment.

I’m going to tell you why you should consider focusing on high-quality dividend growth stocks, as I have.

Terrific businesses tend to generate reliable, rising profits.

Pretty straightforward.

Well, that is possible by selling ever-more of the products and/or services the world demands.

And because there’s only so much profit that can be useful to a business, terrific businesses tend to pay reliable, rising dividends – funded by the aforementioned reliable, rising profits.

This is a circular relationship that just makes sense.

Do good business, make more money, increasingly reward shareholders.

You can find many businesses doing all of this by perusing the Dividend Champions, Contenders, and Challengers list.

This list has pertinent data on hundreds of US-listed stocks that have raised dividends each year for at least the last five consecutive years.

Now, there is a piece of the puzzle that is missing here.

It’s valuation.

See, price is what you pay, but value is what you get.

An undervalued dividend growth stock should provide a higher yield, greater long-term total return potential, and reduced risk.

This is relative to what the same stock might otherwise provide if it were fairly valued or overvalued.

Price and yield are inversely correlated. All else equal, a lower price will result in a higher yield.

That higher yield correlates to greater long-term total return potential.

This is because total return is simply the total income earned from an investment – capital gain plus investment income – over a period of time.

Prospective investment income is boosted by the higher yield.

But capital gain is also given a possible boost via the “upside” between a lower price paid and higher estimated intrinsic value.

And that’s on top of whatever capital gain would ordinarily come about as a quality company naturally becomes worth more over time.

These dynamics should reduce risk.

Undervaluation introduces a margin of safety.

This is a “buffer” that protects the investor against unforeseen issues that could detrimentally lessen a company’s fair value.

It’s protection against the possible downside.

Buying undervalued high-quality dividend growth stocks, remaining patient, and avoiding the desire to overcomplicate investing, can set you up for surprisingly amazing results over the long run.

Of course, the value of a stock is never advertised.

But valuation, too, isn’t a concept that is overly complicated.

My colleague Dave Van Knapp has sought to simplify valuation by writing Lesson 11: Valuation.

Part of a longer, more comprehensive series of “lessons” on dividend growth investing, it provides a valuation system that can be easily and quickly applied toward almost any dividend growth stock you’ll come across.

With all of this in mind, let’s take a look at a high-quality dividend growth stock that appears to be undervalued right now…

Robert Half International Inc. (RHI)

Robert Half International Inc. (RHI) is a global staffing and consulting company.

Founded in 1948, Robert Half is now an $8 billion HR leader that employs over 16,000 people.

The company reports results across three different business segments: Contract Talent Solutions, 63% of FY 2022 revenue; Protiviti, 28%; and Permanent Placement Talent Solutions, 9%.

Approximately 80% of the company’s revenue is generated in the US, while the remaining 20% is internationally derived.

Morningstar glowingly describes the firm like this: “Robert Half should remain one of the leading global staffing firms in a highly fragmented industry. The company places skilled professionals in accounting, finance, and IT roles. We think its hold on small to midsize businesses or SMBs will persist, given its ability to fill open roles quickly and these SMBs’ willingness to sign exclusive contracts. We believe this will yield greater profitability for Robert Half, despite operating in a highly cyclical industry.”

While certain well-known companies get an outsized amount of attention from the investing community, there are a number of truly terrific companies out there that fly way under the radar.

Robert Half is definitely in the latter camp.

But I think that’s a good thing.

Some of my best investments over the last decade or so have been with businesses that don’t show up across headlines very often.

Providing talent and consulting solutions is an effective, high-margin method for making a lot of money.

It’s also effective for building a longstanding track record for rewarding shareholders with safe, growing dividends.

Dividend Growth, Growth Rate, Payout Ratio and Yield

Indeed, Robert Half has increased its dividend for 20 consecutive years.

This stretches through the GFC and the pandemic, which is impressive reliability.

It puts them only five years away from the coveted 25-year mark that marks a Dividend Aristocrat.

The 10-year dividend growth rate of 11.1% is strong.

There’s been impressive reliability here, too, and the most recent dividend raise came in at 11.6%.

You’re pairing this consistent double-digit dividend growth with the stock’s market-beating 2.5% yield.

That yield, by the way, is 60 basis points higher than its own five-year average.

And the payout ratio is only 31.8%, which shows us a healthy, well-covered dividend.

I like dividend growth stocks in what I refer to as the “sweet spot” – a yield of between 2.5% and 3.5%, paired with a high-single-digit (or higher) dividend growth rate.

The yield is on the lower end of its threshold, but the double-digit dividend growth rate is quite a bit higher than I’d usually look for.

I really like these dividend metrics.

Revenue and Earnings Growth

As much as I like them, though, most of these numbers are looking backward.

However, investors have to face the reality of risking today’s capital for the rewards of tomorrow.

As such, I’ll now build out a forward-looking growth trajectory for the business, which will be instrumental when it comes time to estimate intrinsic value.

I’ll first show you what the business has done over the last decade in terms of its top-line and bottom-line growth.

I’ll then uncover a professional prognostication for near-term profit growth.

Amalgamating the proven past with a future forecast in this way should give us the ability to roughly gauge where the business may be going from here.

Robert Half extended its revenue from $4.2 billion in FY 2013 to $7.2 billion in FY 2022.

That’s a compound annual growth rate of 6.2%.


I like to see mid-single-digit top-line growth from a fairly mature business, and Robert Half more than delivered.

Meanwhile, earnings per share grew from $1.83 to $6.03 over this period, which is a CAGR of 14.2%.


We can see that double-digit EPS growth is what has been powering double-digit dividend growth.

A combination of prolific share buybacks and margin expansion have combined to drive a lot of excess bottom-line growth.

For perspective on the former, the outstanding share count has been reduced by 21% over the last decade.

Looking forward, CFRA projects that Robert Half will compound its EPS at an annual rate of 8% over the next three years.

This would represent a fairly substantial drop in growth relative to what Robert Half has done over the last 10 years.

I commend CFRA for taking a cautious view, but I’d also point out that a high-single-digit bottom-line growth rate is enough to deliver satisfactory returns.

I think some caution is warranted, as we are entering a very uncertain period as it pertains to the overall economy, in general, and employment, in particular.

Employment demand will obviously have a direct impact on Robert Half.

CFRA speaks to this point, arguing that some of the concerns are overblown: “Despite escalating fears of recession, U.S. unemployment fell to a near-record low of 3.4% in January, declining for the third month in a row. Further, U.S. job openings were at 11.0M in December, an incredible 57% above prepandemic levels, signaling healthy hiring and wage growth will continue in 2023-2024, in our view. In addition to this favorable backdrop for [Robert Half’s] staffing businesses (73% of sales), we expect strong growth from its unique integration of staffing with the Protiviti consulting unit (27%).”

CFRA sees an advantage over peers for Robert Half, in the sense that it can combine consulting solutions with staffing solutions, adding value to both sides of the house and driving market share gains.

If we take CFRA’s forecast as the near-term base case for EPS growth, I think we’re easily looking at similar dividend growth.

The low payout ratio could even expand a bit and allow for dividend growth to slightly outpace EPS growth, but I wouldn’t at all mind a dividend growth track that mirrors EPS growth.

And when you’re able to start off with a 2.5% yield, a high-single-digit dividend growth rate can get you to a 10%+ annualized total return in a hurry.

Moreover, Robert Half could very well get back to its double-digit-growth ways in short order, once we’re through this economic uncertainty, which could propel even better returns over the longer run.

This is a very compelling setup, in my view.

Financial Position

Moving over to the balance sheet, Robert Half has a sterling financial position.

The company has no long-term debt.

In an environment where rates are rising and liquidity is draining, Robert Half is in a very favorable spot.

Moreover, whereas a lot of companies have been gorging on debt over the last decade, Robert Half ended FY 2022 with a cash position that was more than twice as large as it was 10 years ago.

Profitability is robust.

Over the last five years, the firm has averaged annual net margin of 7.6% and annual return on equity of 38.3%.

Circling back around to the margin expansion story that I touched on earlier, Robert Half’s net margin was routinely in the 6% area in the first half of the last 10-year period.

This business is quietly making a lot of money and generously rewarding shareholders.

And with brand strength, a network effect, entrenched relationships, and a built-up database, the company does benefit from durable competitive advantages.

Of course, there are risks to consider.

Regulation, litigation, and competition are omnipresent risks in every industry.

Robert Half is highly exposed to economic cycles, as a healthy economy supports demand for workers and hiring activity.

There are limited barriers to entry in the industry.

Broad changes in work and/or the workforce could impact the industry and company.

Less outsourcing of HR needs would have a negative effect on Robert Half.

Overall, I see the risks here as limited and acceptable, especially when lined up against the growth and quality of the business.

And then there’s the valuation, which looks appealing after a 37% drop in the stock’s price from its 52-week high…

Stock Price Valuation

The stock is trading hands for a P/E ratio of 12.8.

That’s very inexpensive relative to the broader market.

It’s also well off of the stock’s own five-year average P/E ratio of 19.4.

The P/CF ratio of 12.3 is also showing a disconnect in comparison to its own five-year average of 15.6.

And the yield, as noted earlier, is significantly higher than its own recent historical average.

So the stock looks cheap when looking at basic valuation metrics. But how cheap might it be? What would a rational estimate of intrinsic value look like?

I valued shares using a dividend discount model analysis.

I factored in a 10% discount rate and a long-term dividend growth rate of 8%.

This dividend growth rate projection is at the high end of what I allow for.

But I think Robert Half deserves the benefit of the doubt.

The company has demonstrated an ability to grow the dividend at a double-digit rate for a very long time.

And that’s been supported by double-digit EPS growth for a very long time.

The near-term forecast for EPS growth is this same 8%, which should allow for at least that much dividend growth over the foreseeable future.

Also, the low payout ratio opens up a lot of flexibility.

Plus, the company’s balance sheet is as good as it gets, and that offers even more flexibility.

This is a terrific business, and I do think it’ll continue to reward shareholders with generous dividend raises.

The DDM analysis gives me a fair value of $103.68.

The reason I use a dividend discount model analysis is because a business is ultimately equal to the sum of all the future cash flow it can provide.

The DDM analysis is a tailored version of the discounted cash flow model analysis, as it simply substitutes dividends and dividend growth for cash flow and growth.

It then discounts those future dividends back to the present day, to account for the time value of money since a dollar tomorrow is not worth the same amount as a dollar today.

I find it to be a fairly accurate way to value dividend growth stocks.

The stock looks cheap to me, and I don’t believe that I was being overly aggressive with my valuation.

But we’ll now compare that valuation with where two professional stock analysis firms have come out at.

This adds balance, depth, and perspective to our conclusion.

Morningstar, a leading and well-respected stock analysis firm, rates stocks on a 5-star system.

1 star would mean a stock is substantially overvalued; 5 stars would mean a stock is substantially undervalued. 3 stars would indicate roughly fair value.

Morningstar rates RHI as a 4-star stock, with a fair value estimate of $95.00.

CFRA is another professional analysis firm, and I like to compare my valuation opinion to theirs to see if I’m out of line.

They similarly rate stocks on a 1-5 star scale, with 1 star meaning a stock is a strong sell and 5 stars meaning a stock is a strong buy. 3 stars is a hold.

CFRA rates RHI as a 5-star “STRONG BUY”, with a 12-month target price of $101.00.

I came out closer to where CFRA is at, although we’re all in rough agreement here around that $100 level. Averaging the three numbers out gives us a final valuation of $99.89, which would indicate the stock is possibly 23% undervalued.

Bottom line: Robert Half International Inc. (RHI) is a debt-free, high-quality business. It’s hard to find fault anywhere. With a market-beating yield, a double-digit dividend growth rate, a low payout ratio, 20 consecutive years of dividend increases, and the potential that shares are 23% undervalued, this under-the-radar name is a prime candidate for serious long-term dividend growth investors.

-Jason Fieber

P.S. If you’d like access to my entire six-figure dividend growth stock portfolio, as well as stock trades I make with my own money, I’ve made all of that available exclusively through Patreon.

Note from D&I: How safe is RHI’s dividend? We ran the stock through Simply Safe Dividends, and as we go to press, its Dividend Safety Score is 96. Dividend Safety Scores range from 0 to 100. A score of 50 is average, 75 or higher is excellent, and 25 or lower is weak. With this in mind, RHI’s dividend appears Very Safe with a very unlikely risk of being cut. Learn more about Dividend Safety Scores here.

Source: Dividends & Income