Income investors might dismiss stocks with low dividend yields. Indeed, a current yield below 1% looks fairly unimpressive, as such as low yield will not generate meaningful income for shareholders right now. However, some dividend stocks with low yields are excellent long-term dividend growth stocks.

For example, Intuit Inc. (INTU) is a large-cap stock with a relatively low dividend yield of 0.5%. While this compares negatively to the 1.4% average yield of the S&P 500, investors should not automatically dismiss Intuit stock. In fact, Intuit is a premier dividend growth stock. Its high rate of dividend increases will more than compensate investors for a low current yield. As a result, Intuit is a top dividend growth stock.

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Business Overview and Recent Events

Intuit is a cloud-based accounting and tax preparation software giant, headquartered in Mountain View, California. Its products provide financial management, compliance, and services for consumers, small businesses, self-employed workers, and accounting professionals worldwide. Its most popular platforms include QuickBooks, TurboTax, Mint, and TSheets. While consumers are likely familiar with the TurboTax service, Intuit also has a high-growth small business segment. QuickBooks is arguably the company’s most popular small business service, as it has different versions including Quickbooks Pro vs Premier.

Cumulatively they serve more than 52 million customers. The company records more than $8.8 billion in annual revenues. The company has done an excellent job continuing to grow, despite the economic challenges posed by the coronavirus pandemic over the past year. On February 23rd, 2021, Intuit reported its Q2-2021 financial results for the period ended January 31st, 2021.

The company continued performing well during the year, growing its “Small business and Self-employed” revenues by 11% and its online ecosystem revenues by 22%. However, due to IRS opening later this year, its consumer group sales declined by 74%, causing total revenues to decline by 7% to $1.58 billion. The IRS began accepting and processing returns starting February 12th, compared to January 27th, during last year. EPS was $0.68 versus $1.16 last year, reflecting squeezed margins as a result of the IRS revenue period mismatch.

Management remains focused on its acceleration of innovation-driven AI strategy and its 5 Big Bets, including connecting its customers with professionals, unlocking smart money decisions upon the closing of its pending Credit Karma acquisition and disrupting the small business mid-market with QuickBooks by offering tailor-made solutions.

Finally, management reassured investors of its overall robust performance, raising its previous guidance. For FY2021, revenues are expected to be $8.81-$8.95 billion (previously $8.20-8.40 billion), implying a 15%-17% growth rate and non-GAAP EPS of $8.20 to $8.40, a growth rate of approximately 4%-7%. We forecast FY2021 EPS of $8.45 due to Intuit’s tendency to outperform its own outlook, as well as an overall humble EPS guidance against its revenue growth.

Long-Term Growth Outlook

Intuit stock is very attractive for its long-term growth, both in terms of earnings growth and dividend growth. For example, the company generated an earnings-per-share compound annual growth rate of 14% over the past decade, while its annual dividend growth has been about 17% since its IPO. Consistent earnings growth has resulted from multiple acquisitions that have allowed the company to expand its portfolio of products. We raise our EPS and DPS growth expectations from 9% to 11% in the medium term to reflect Inuit’s better-than-expected revenue guidance.

Overall, its resilient revenues should continue to grow rapidly due to its non-stop acquisitions, which can unlock significant economies of scale over time in the bottom line. Share repurchases are an additional earnings-per-share growth catalyst. The company’s stock repurchase program currently has $2.2 billion remaining, representing 2.0% of its market cap. Intuit repurchased $175 million worth of shares during the second quarter.

Final Thoughts

Intuit stock does not look attractive on the surface for income investors, due to its low current yield. But we believe it would be a mistake to avoid the stock altogether because of this, as Intuit has generated impressive growth and excellent shareholder returns for many years. We expect this outperformance to continue, making Intuit an appealing long-term dividend growth stock.