As far as dividend stocks are concerned, Constellation Software (TSX:CSU) won’t make many investors’ lists of top stocks to buy. Currently, the company provides investors with a measly 0.12% dividend yield, one which may not really factor into the investing criteria for many investors. However, I think this growth stock is worth looking at in a number of ways, so let’s dive into this top Canadian tech giant from multiple perspectives, shall we?
Here’s what to make of Constellation’s holistic total return profile right now.
Growth first
As most investors know, I’ve continued to pound the table on Constellation Software, a call that’s been directionally correct for a long time. Of course, things can change, and this stock chart above may not look so much like a parabola if we do get some periods of choppiness and consolidation ahead. That could certainly be in the cards for this company, given its relatively steep valuation multiple of around 100 times trailing earnings.
That said, there’s a reason for Constellation Software’s steep multiple. This is a growth stock first and foremost, with the company’s business model focused on consolidating a fragmented software sector in North America. Via acquiring small- and mid-sized companies in this sector, Constellation Software has found a way to provide a durable and sustainable growth model, one which the market has clearly recognized.
What about its dividend?
Constellation Software currently has a very small yield of just 0.12%. Now, it should be noted that this yield has declined significantly over time due in part to the stock’s sky-high growth in recent years. Those who locked in this dividend years ago may certainly have a much higher yield overall, depending on their base cost.
Thus, I think this relatively low yield is a reflection of how well the company has grown over time. And with a payout ratio of only 13%, an easy argument could be made that this dividend distribution should increase over time.
I’m not sure it will, in part due to the fact that the company’s capital is probably better used to acquire more companies and grow its portfolio. In fact, many investors may push back against such an idea for these reasons.
But if there were a tech growth gem that’s well positioned to grow its dividend over time, it would be Constellation Software. We’ll have to see what the company’s management team decides to do on this front moving forward.
Bottom line
In terms of total returns, it’s hard to find a better performer over the past decade than Constellation Software on the TSX. This is a top Canadian growth stock I will continue to pound the table on until the underlying thesis changes.
I also think the company’s dividend profile is intriguing and another facet investors shouldn’t ignore. Simply put, there are many reasons why investors own this stock, apart from its growth.
