CGI to pay dividend, a rarity for large Canadian tech companies

CGI Inc. GIB-A-T is offering its first ever dividend, making it one of only a handful of Canada’s largest tech firms to distribute the profit-sharing payments to its investors.

The Montreal-based consulting company announced Tuesday it would start paying a quarterly cash dividend of 15 cents per share in the first quarter of 2025, alongside the news that it had recorded net earnings of $440.1-million in its third quarter. Its revenue for the quarter totalled $3.67-billion, up $50-million from the year prior. These earnings translate to $1.94 per basic share, up 16 cents from last year.

CGI, Canada’s third most valuable publicly traded technology company, becomes only the fourth among the 10 largest technology names traded on the Toronto Stock Exchange to pay a dividend, joining Constellation Software Inc. CSU-T, Enghouse Systems Ltd. ENGH-T and Open Text Corp. OTEX-T.

By contrast, all of the largest players in many other TSX sectors pay out dividends, including financials, real estate, utilities and telecom services.

CGI’s offering will be the smallest of the four quarterly tech dividends, as Open Text pays 25 US cents a share with a 3.181 per cent annual dividend yield, Constellation pays US$1.00 with a 0.129 per cent yield and Enghouse pays 26 cents with a 3.453 per cent yield.

Thanos Moschopoulos, an analyst with BMO Capital Markets, said a dividend makes sense for mature companies such as CGI.

“It’s a company that many investors felt should be paying a dividend given their strong and consistent cash flow generation, the underlying diversification of the business, the balance sheet and I think investors have conveyed that feedback to management over the years,” he said.

Mr. Moschopoulos said Canada doesn’t see a lot of dividend-paying tech stocks because few are large or mature enough to support regular cash disbursements to shareholders.

“Smaller companies are going to have more underlying volatility in their business and companies that are growing superfast might want to have more optionality in terms of what they do with their future cash,” he said.

Across the border, many of CGI’s American competitors pay regular dividends, said Richard Tse, an analyst with National Bank Financial. He said CGI’s decision to start paying one will give it more flexibility and open up its shareholder base to investors who only invest in dividend-paying stocks, such as dividend fund managers.

Mr. Tse said there are only so many ways CGI can use its large capital resources, which include $1.2-billion in cash and equivalents, including paying a dividend, spending to grow its existing business, making acquisitions and buying back shares. The relatively small size of the dividend – amounting to less than 10 per cent of free cash flow – means it won’t limit CGI’s ability to spend in other areas, he added.

“It’s not going to be onerous for them, but I think it just gives them more levers to pull in terms of capital allocation,” he said.

Constellation Software Inc., Canada’s second largest technology company by market capitalization, pays a US$1-per-share quarterly dividend and used to pay out extra, special cash dividends to shareholders from its excess free cash flow. It ended that practice in 2021 after a board member convinced founder and president Mark Leonard that Constellation could invest its capital more effectively than most of its shareholders – and could even ditch its regular dividends altogether if it found better uses for the capital, Mr. Leonard wrote in a letter to shareholders at the time.

The news of CGI’s dividend has come at a seemingly random moment, said Mr. Moschopoulos, owing to its timing outside of annual dividend policy evaluations in January.

On Monday, an American subsidiary of CGI announced its acquisition of Aeyon, a tech company that has worked on data management, analytics and artificial intelligence for the U.S. government. CGI would not disclose the deal’s value, but Mr. Moschopoulos estimated it would add 1 per cent to the company’s revenue.

Earlier this month, CGI also announced its acquisition of Celero, a Canadian technology services provider, from three Prairie credit union centrals. The financial terms of that deal were also not immediately available.