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Tax season may be approaching, but TurboTax maker
Intuit(INTU - Get Report) still looks likely to announce a dividend cut. That's because while Intuit's TurboTax product -- and other titles like Quicken and QuickBooks -- enjoy an impressive foothold in the accounting software market, they're still facing a lot of competition from free alternatives and more hands-on services. That was enough to pressure shares to a bigger than expected quarterly loss for third-quarter 2012 and it makes a dividend cut look more likely.
Don't get me wrong, there's a lot to like about Intuit. The firm has more cash than debt, and it typically makes up for weak performance in the fiscal second quarter, when the lion's share of tax season revenue hits the books. But growth isn't there. The firm's own free-tax-filing offering has been cannibalizing its premium TurboTax product, as have other free-filing options thanks to the relative ease of Americans' tax returns after the recession.
With the market already saturated, organic growth doesn't look promising in the tax prep business. While small business products do hold more growth prospects, Intuit faces a lot of competition from brick-and-mortar accountancy firms who cost more, but who offer more hand holding.
I don't think that Intuit is going to feel a major cash crunch anytime soon (the firm should continue to generate around a billion dollars of free cash each year), but the firm has seen its cash fall to a lower level than has been seen in quite some time. For comparison's sake, INTU had twice as much of a cash cushion a year ago. The fact of the matter is that the firm's dividend has been growing faster than its revenues have.
As the search for growth prospects burns through more cash, I'd expect the firm's 1.16% dividend payouts to suffer.
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