After months of negotiations, announcements, delays, extensions, and uncertainty, the majority of President Trump’s reciprocal tariffs went into effect on Thursday. Initially at least, markets met the news with a resounding “shrug”. Of course, the full impact remains to be seen.
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We’ve created an AI agent for investing that has consistently generated real alpha in the stock market, across many years.
And, we use that AI agent to build our Dividend Growth Stocks Model Portfolio, which features companies that not only produce ample free cash flow to support their dividend payments, but also have a strong track record of consistently increasing their dividend payments over time. In uncertain times, dividends provide a safe haven, but these companies look poised to pay and grow their dividends going forward.
Below is an overview of one of the stocks from the July edition of our Dividend Growth Model Portfolio. It is not an in-depth Long Idea report, but it will give you a good understanding of how our research combines fundamental research with expectations investing. It’s rare we find a dividend stock this good. Out of the 3,300+ stocks we cover, only about 25 stocks qualify for this Model Portfolio.
We hope you enjoy this free stock pick. Feel free to share this report with friends and colleagues.
We update this Model Portfolio monthly. July’s Dividend Growth Model Portfolio was updated and published for clients on July 30, 2025.
Free Stock Pick: Korn Ferry (KFY: $70/share)
Korn Ferry has grown revenue and net operating profit after-tax (NOPAT) by 10% and 11% compounded annually, respectively, since fiscal 2015. The company’s NOPAT margin improved from 8.6% in fiscal 2015 to 9.7% in fiscal 2025, while invested capital turns remained at 1.4 over the same time. Rising NOPAT margin drives return on invested capital (ROIC) from 12% in fiscal 2015 to 14% in fiscal 2025.
Figure 1: Korn Ferry’s Revenue & NOPAT Since Fiscal 2015
Sources: New Constructs, LLC and company filings
Free Cash Flow Exceeds Dividend Payments
Korn Ferry has increased its regular, quarterly dividend from $0.10/share in fiscal 1Q20 to $0.48/share in fiscal 4Q25. The quarterly dividend, when annualized, equals $1.92/share and provides a 2.7% dividend yield.
More importantly, Korn Ferry’s cumulative free cash flow (FCF) easily exceeds its dividend payments. From fiscal 2020 through fiscal 2025, Korn Ferry generated $1.1 billion (34% of current enterprise value) in FCF while paying over $243 million in dividends. See Figure 2.
Figure 2: Korn Ferry’s FCF vs. Dividends Since Fiscal 2020
Sources: New Constructs, LLC and company filings
Companies with FCF well above dividend payments provide higher-quality dividend growth opportunities. On the other hand, dividends that exceed FCF cannot be trusted to grow or even be maintained.
KFY Is Undervalued
At its current price of $70/share, Korn Ferry has a price-to-economic book value (PEBV) ratio of 1.0. This ratio means the market expects Korn Ferry’s NOPAT to never grow from TTM levels. This expectation seems overly pessimistic given that Korn Ferry has grown NOPAT by 13% compounded annually since fiscal 1999 and 11% compounded annually since fiscal 2015.
Even if Korn Ferry’s:
- NOPAT margin falls to 9% (below both five-year average and TTM NOPAT margin of 10%) through fiscal 2034,
- revenue grows at consensus rates in fiscal 2026 (2%), fiscal 2027 (5%), and fiscal 2028 (6%) and
- revenue grows at 6% (below 5-year CAGR of 7% and 10-year CAGR of 10%) each year thereafter through fiscal 2035, then
the stock would be worth $89/share today – a 27% upside. In this scenario, Korn Ferry’s NOPAT would grow 5% compounded annually through fiscal 2035. Contact us for the math behind this reverse DCF scenario.
Add in Korn Ferry’s 2.7% dividend yield and a history of dividend growth, and it’s clear why this stock is in July’s Dividend Growth Stocks Model Portfolio.
Critical Details Found in Financial Filings by Our Robo-Analyst Technology
Below are specifics on the adjustments we make based on Robo-Analyst findings in Korn Ferry’s 10-K:
Income Statement: we made over $75 million in adjustments with a net effect of removing over $30 million in non-operating expense. Clients can see all adjustments made to the Korn Ferry’s income statement on the GAAP Reconciliation tab on the Ratings page on our website.
Balance Sheet: we made over $1.8 billion in adjustments to calculate invested capital with a net decrease of under $1.2 billion. The most notable adjustment was for deferred compensation. See all adjustments made to Korn Ferry’s balance sheet on the GAAP Reconciliation tab on the Ratings page on our website.
Valuation: we made over $2.0 billion in adjustments with a net increase to shareholder value of over $200 million The most notable adjustment to shareholder value was total debt. See all adjustments to Korn Ferry’s valuation on the GAAP Reconciliation tab on the Ratings page on our website.
This article was originally published on August 8, 2025.
Disclosure: David Trainer, Kyle Guske II, and Hakan Salt receive no compensation to write about any specific stock, style, or theme.
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