At different stages of a company’s maturation cycle, dividend payouts as a percentage of overall earnings typically cover a wide range.
For most software or technology companies, any payout whatsoever can be considered a win for income-oriented investors, as most companies operating in such sectors are focused on deploying earnings back into the operating business, which should (at least theoretically) earn investors a much higher return on their invested capital than receiving cash back in the form of dividends.
Such is the case with Canadian technology company Constellation Software Inc. (TSX:CSU). This company’s miniscule dividend yield of only 0.5% is masked by its parabolic surge seen over the past five years – shares of Constellation Software have increased approximately 600% over this time frame, diminishing the company’s yield but proving to be extremely profitable for investors from a capital gains standpoint.
The company continues to raise its dividend distribution alongside growing earnings at breakneck speed, with its most recent dividend hike of more than 25% meaningful in the long-run for investors willing to buy and hold today.
Companies like Constellation Software that keep their payout ratios low and continue to invest in their underlying business with a return on equity of more than 47% should continue to do so; for long-term investors, despite a current valuation multiple that many may say puts Constellation in the bucket of “overvalued” companies today, the ability of this company’s management team to generate very high ROIC numbers should provide an incentive for tech investors to consider this company even at current levels which are near all-time highs.
Invest wisely, my friends.
