Debunking the dividend myth

I was having this morning a discussion with yet another "financial reporter" from a newspaper whose name escapes me, and I was prompted to give thoughts on whether or not CGI should pay - gasp - dividends to its shareholders.

My feelings are always the same on this topic, and let me guide you through my inescapable logic. Let's say you check your account balance one day and discover that you were able to save $10K during the last year or so. This wonderful fact might trigger some thoughts as whether or not you should indulge in Full HD entertainment or buy a top-of-line DSLR.

Instead of shoving that 10K into discretionary expenses, let's say you go to the ATM and retrieve all that money into $20 bills. You then knock on the door of your neighbour and when he opens the door, you give him a crisp $20 bill. You then go to the next house on the street, give $20, and repeat the process until you run out of cash.

Would that cash distribution sound totally absurd? Dear members that's what dividends are, and to me it sounds like a serious psychological disorder. My therapist doesn't entirely agree, but to hell with him.

Listen to what the great Warren Buffett said in 1997: We don't pay dividends because we think we can turn every dollar we make into more than a dollar in market value. He conveyed a similar message at Berkshire’s 2008 annual meeting, where he remarked: “The test on dividends is, ‘can you create more than $1 of value with the one you retain?’ … We hope to move the capital to a place where it will be worth $1.20"

If we follow's Warren's logic, those who issue dividends are D-grade managers who cannot turn a loonie into something more, therefore they give money to augment their personal prestige rather than working their ass off for the shareholders.

My feelings are exactly the same, why should we give fedex money to whining shareholders who don't know manure about our business when we can invest that same money into pursuing acquisitions? Why should we plow dough into employees perks and benefits when it does not impact our earnings? Last time I checked, there's no "Happiness" line in a financial statement.

This is something I'm trying to explain to my board of directors. They are this wonderful collection of wealthy baby boomers, yet they think CGI should be the vehicle to fund the next 6 generations of their families. They pressure me to issue dividends like you could not believe. They whine about their 7-series that doesn't start when it's -20c, they whine about prohibitively expensive tuition fees for their kids, for god sake then even whine about the price of Rice Crispies. GIB dividends would bring them so close to total happiness, or so they say.

So rest assured dear members, our cash reserve won't fuel useless dividends nor will they be spent on doomsday scenarios such as retirement funds for our employees. Profitable growth is my personal mission and nothing will stop me.

Now get back to work.