Hackett Group's Sustainable Dividend Growth: A Core Holding for Income Investors?

Income investors are always on the hunt for companies that balance robust earnings with a commitment to shareholder returns. The Hackett Group (HTG) has long been a standout in this arena, but its recent financial performance and strategic moves raise a critical question: Can this AI-driven consulting firm sustain its 13% annual dividend growth since 2015 while reinvesting in high-growth areas? Let's dissect the numbers and strategy to determine if HTG deserves a spot in your income portfolio.

Earnings Coverage: A Shield Against Volatility

The Hackett Group's Q2 2025 results highlight a key strength: strong earnings coverage of its dividend. While GAAP diluted EPS fell to $0.06 due to non-cash compensation expenses ($5.1M) and acquisition costs ($2.5M), adjusted EPS held steady at $0.38—slightly below the prior year's $0.39 but still well above the $0.12 dividend per share. This means the dividend is covered by 31.5% of adjusted earnings, a healthy ratio that leaves room for reinvestment and unexpected shocks.

The company's ability to isolate non-core expenses in its adjusted metrics is crucial. For income investors, this transparency signals that management isn't masking declining fundamentals with accounting gymnastics. Instead, it's addressing short-term pain (like the $0.25-per-share hit from stock awards and acquisitions) while maintaining a dividend that's comfortably within its means.

Reinvestment Strategy: Fueling AI-Driven Growth

HTG's reinvestment strategy is a masterclass in balancing innovation with prudence. The company is aggressively expanding its generative AI platforms, including the accelerated release of AI XPLR V4, which enables clients to design AI workflows tailored to their existing tech stacks. This isn't just a buzzword—it's a defensive play in a market where AI consulting is projected to grow at a 25% CAGR through 2030.

Strategic acquisitions like LeewayHertz and Spend Matters further bolster HTG's offerings, though they come with upfront costs. The $2.5M in acquisition-related expenses in Q2 2025 are a short-term drag on GAAP earnings but position the company to capture a larger share of the $1.5T global AI market.

Moreover, HTG's capital allocation isn't just about growth—it's about shareholder value. In Q2 2025, the company spent $4.4M repurchasing 180,000 shares at $24.50 each, reducing its float while maintaining a $30M repurchase authorization. This dual focus on reinvestment and buybacks suggests management is prioritizing both long-term growth and near-term returns.

Dividend Track Record: A 13% Annual Streak Since 2015

The Hackett Group's dividend history is a testament to its financial discipline. Since 2015, the company has boosted its payout at a 13% compound annual growth rate, a rarity in today's market. The Q3 2025 dividend of $0.12 per share, payable on October 3, 2025, continues this trajectory.

What makes this streak sustainable? Two factors:
1. Operating cash flow: HTG generated $5.6M in operating cash flow in Q2 2025, providing a buffer for dividend payments even during periods of GAAP earnings contraction.
2. Liquidity: With $10.1M in cash and a $23M credit facility, the company has ample runway to fund dividends and reinvestment without overleveraging.

The Verdict: A Core Holding for Income Portfolios?

For income investors, HTG checks most boxes:
- Earnings coverage: Adjusted EPS comfortably supports the dividend.
- Reinvestment: Strategic bets on AI and acquisitions position the company for long-term growth.
- Track record: A 13% annual dividend increase since 2015 is rare and reliable.

However, risks exist. The GAAP EPS decline in Q2 2025 underscores the volatility of non-core expenses, and the AI sector is still nascent. That said, HTG's hybrid approach—combining buybacks, dividend growth, and AI innovation—creates a compelling case for inclusion in a diversified income portfolio.

Investment Advice: Consider adding HTG to your core holdings if you're comfortable with moderate volatility and prioritize companies that reinvest in high-growth areas while maintaining a strong dividend. Monitor adjusted EPS trends and the pace of AI platform adoption to gauge long-term sustainability.

In a market where many “safe” income stocks trade at unattractive valuations, The Hackett Group offers a rare blend of growth and yield—a recipe that could pay dividends for years to come.