CGI (TSX:GIB.A) is a global leader in internet technology (IT) and business consulting services, with a massive presence across multiple industries. While CGI’s reputation for strong business performance is well-established, for dividend investors, this stock may prompt a second look — not for its yield but for its growth potential. Unlike some high-yield dividend stocks, CGI stock doesn’t offer dividends as part of its value proposition. Instead, it’s opting to reinvest in growth and acquisition strategies.
Into earnings
First, let’s start with CGI stock’s earnings update. The company is set to release its fourth-quarter and fiscal year 2024 results on November 6. Investors will be closely watching this announcement to see if CGI stock continues its trend of steady revenue growth. This was 1.3% year over year in its most recent quarter. With an operating margin of over 16% and a profit margin of about 11.5%, CGI stock has displayed strong efficiency and profitability, thus making it a solid performer even without a dividend.
The company’s revenue of $14.52 billion in the trailing 12 months and its steady return on equity of nearly 20% are positive signs of fiscal health. CGI stock also has a strong balance sheet, with over $1.16 billion in cash and a manageable debt load relative to its assets. However, one factor that may make it less attractive to dividend-focused investors is the lack of a payout. CGI hasn’t issued dividends; instead, it is focusing on growth and stability.
Still valuable
On the valuation front, CGI stock trades with a trailing price-to-earnings (P/E) ratio of 21.78, indicating a reasonable price given its strong earnings. The forward P/E of 18.83 suggests that the market expects CGI to continue growing. And the company’s price-to-book ratio of 3.99 is another sign of its solid standing in the tech industry. While its valuation isn’t particularly low, it aligns with CGI stock’s history of steady growth and financial discipline.
With no dividend payout and a history of reinvesting profits, CGI stock leans towards a capital appreciation play rather than income generation. For investors prioritizing income, CGI’s zero dividend yield may not fit the bill. However, those with a growth-oriented approach might appreciate the stock’s consistent performance and the company’s commitment to expansion through acquisitions and service innovations.
CGI’s beta of 0.86 also means it’s less volatile than the market, thus offering some degree of stability. A plus for conservative investors. This low volatility, combined with steady revenue and profit margins, makes CGI stock a potentially good choice for long-term investors seeking a steady growth stock rather than a high-yield dividend stock.
Bottom line
CGI stock is not a buy for dividend seekers because it simply doesn’t offer one. However, for investors looking for stable growth, steady financials, and a commitment to reinvestment, CGI stock could be a valuable addition to a portfolio. Its upcoming earnings report might provide additional insight into future growth. And the company’s track record suggests that it’s well-positioned for continued stability.
So, while CGI stock might not satisfy income-focused investors, it remains a strong pick for growth. For those looking for reliable long-term growth over a high dividend yield, CGI’s financial discipline and robust market presence make it a stock worth considering.
