CGI Inc. (TSX:GIB.A) is one of Canada’s leading and most respected information technology (IT) companies. In fact, it’s a leading global $36 billion IT and business consulting services firm. It’s true that CGI stock has not paid a dividend yet, but the capital gains that it has posted over the long term have been impressive.
Let’s take a look.
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CGI’s story
CGI Group was founded in 1976 by 26-year-old Serge Godin, who initially set up shop in his basement with co-founder Andre Imbeau. Since that day, the company has honed its expertise, expanded its service and software solutions offering, and embarked on a massive growth initiative, mostly through well-timed acquisitions and an impeccable integration process.
Most recently, CGI’s third quarter fiscal 2024 results continue to reflect strong client demand, as well as strong company execution. For example, revenue came in at $3.7 billion and earnings per share increased 9% to $1.91. Additionally, the company generated a return on invested capital (ROIC) of a very healthy 16.1%. Lastly, operating cash flow increased 21% to $497 million.
Clearly, this company has been steadily growing as the world digitizes at an accelerating pace. It’s financially strong, operationally sound, and a recognized expert in its field. As you can see from CGI’s stock price graph below, all of this good stuff has not gone unrecognized. Rising revenue, cash flows, earnings, and profitability have sent the stock considerably higher.
Finally, a dividend is coming
After years of strong cash flows, CGI is finally ready to initiate a dividend. It’s small, but it’s a welcomed move and clear indication of CGI’s strength. It’s important to note that this dividend does not change CGI’s acquisition strategy planned to consolidate the industry and grow. Acquisitions remain paramount to the company’s future and success.
The dividend payments will begin in the first quarter of fiscal 2025. With this dividend, CGI hopes to attract more investors, thus driving up the stock’s valuation. It adds another layer to the story and another way to return cash to shareholders.
So, CGI will start with a quarterly dividend of $0.15. The dividend yield based on CGI’s stock price today will be 0.4%. It’s not a significant yield, but it’s a start. True to its ways, CGI is embarking on this new phase with careful caution and conservatism. Given the strong cash flow growth that the company is achieving, I think we can expect a reliable, growing dividend from the company.
Looking ahead, the balance between investing in acquisitions and returning capital to shareholders will continue to be carefully considered. The growth opportunities remain strong and CGI has no intention of missing out on them.
The bottom line
An upcoming dividend from CGI is a very welcomed development for investors. While it’s small, it’s a reflection of the growth that the company has achieved over the last many years. When it comes to buying CGI stock, the dividend is just one of many reasons to buy.
The company’s business remains strong and growing, with a backlog of $27.6 billion (or 1.9 times revenue) and strong cash flows. All of this supports growth, a dividend, share buybacks, and acquisitions. All good reasons to buy CGI stock.
