Daily Gains Letter

How the Arrival of Tax Season Could Actually Make an Investor Happy

By for Daily Gains Letter | Feb 19, 2013

















DL_Feb_19_2013_MoeAfter the fiscal cliff was averted, there were some changes made to the American Taxpayer Relief Act (ATRA) by Congress. As a result, the Internal Revenue Service (IRS) announced that Americans can now start to file for their individual taxes starting January 30 of this year. (Source: “IRS Plans Jan. 30 Tax Season Opening For 1040 Filers,” Internal Revenue Service web site, January 8, 2013, last accessed February 15, 2013.)

At the same time the announcement was made, the IRS also encouraged individuals to file for taxes online, because it’s the quickest way. In addition, the agency for tax collection also reported that last year, more than 80% of Americans filed their taxes electronically.

The deadline to file for individual taxes this year is April 15. (Source: “Tax Day by Tax Years – 2013 Tax Due Dates and Filing Deadlines for 2012 Tax Returns,” efile.com, last accessed February 14, 2013.)

Having said that, filing for taxes can sometimes be a hassle. You have to look at your expenses, how much you earned, and other related information. If you file your own taxes, then the calculations become much more rigorous—finding capital gains on the investments and calculating your dividend income are just a couple of the things you need to worry about.

But, as difficult as it may be, there are ways you can profit from it. Look at companies like H&R Block, Inc. (NYSE/HRB), for example. This company is involved in the space for individual tax preparation and other related activities in the United States, Canada, and Australia.

H&R Block is unique in the sense that it operates through retail offices run by either the company itself or franchisees—a person can walk into the office and get their taxes prepared. If the individual doesn’t want to do that, then he or she can file for taxes online through their web site.

In addition to tax services, the company is also involved in traditional banking—offering checking accounts, savings accounts, individual retirement accounts, and certificates of deposit. (Source: Yahoo! Finance, last accessed February 14, 2013.)

In its second-quarter corporate earnings for fiscal year 2013 (ended October 31) H &R Block reported a net loss of $100 million, or $0.37 per share—which is typical for the second quarter, due to the seasonality effect of tax season. Compared to the same quarter in the previous year, the company’s loss improved by 10% and revenues increased by six percent.

Looking ahead, H&R Block is optimistic about its growth. The CEO of the company, William Cobb, said “I’m very pleased with the improvement in our second quarter results, which reflect savings from our cost reduction initiatives and a strong tax season in Australia.” (Source: “H&R Block’s Net Loss From Continuing Operations Improves 18 Percent,” H&R Block, Inc. web site, December 6, 2012, last accessed February 15, 2013.)

He also added, “The U.S. tax season is right around the corner and we believe we’re on pace to deliver significant earnings and margin expansion in fiscal 2013.” (Source: Ibid.)

Even though the company experienced a net loss in the second quarter of fiscal year 2013, it managed to give its shareholders a dividend payment of $0.20 per share. This dividend payment marked 201 consecutive quarterly dividend payments to its shareholders.

The forward dividend yield on H&R Block is 3.2%, and five-year average dividend yield is 3.7%. (Source: Yahoo! Finance, last accessed February 14, 2013.)

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Chart courtesy of www.StockCharts.com

Since late 2010, the price of H&R Block’s stock has been trending higher—the stock was trading below $10.00 when the upside rise began. At the end of 2012, the price of the stock formed a bullish chart pattern called an “ascending triangle,” indicating that there might be a breakout to the upside. The stock prices did break out above the ascending triangle and have moved significantly higher from there.

H&R Block can simply be a cyclical play for the tax preparation season. As the IRS reports, with 80% of Americans filed their taxes online, this company can grow significantly because of the services it provides in that area.

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