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.

The Needs of The Few

There are different trends in the IT industry, and from my point of view the best way to manage IT is to impose standards and crush those who differ.

Case in point, I was reading that Kraft has initiated a "Bring your own computer" program for its employeees. This devious program states that "everyone works differently. For some, a standard computer or laptop is just the right tool to get their work done. For others, a computer with a little something extra – a different operating system, custom hardware, more memory, etc. – is the best fit for their job." Kraft's new employee initiative "gives you the freedom to choose the right computer for your lifestyle".

I have many issues with Kraft. For one, they produce a way too great variety of their Singles processed cheese product. Regular version, which is the gold standard for making a grilled cheese. There's the thick version, which serves no real purpose since you can use 2 regular slices and achieve the same thickness objective. There's the Swiss version. There's the low-fat version. There's the extra-calcium version. There's even the Omega-3 version. When I pick a pack of Singles at the store, I have to spend at least 45 seconds to identify the item that I want - that is the standard version. Kraft should eliminate all this confusion and keep a single product - in a single format size, that is 24 slices.

Next issue with Kraft: They are paying a way too generous dividend - a 57% payout ratio - this means that the company keeps $0.43 out of every earning dollar and - gulp - gives the rest to shareholders. This financial non-sense has been going on for years, and they've been increasing this dividend for the past 8 fucking years. Holy Mackarel, this ain't no way to build profitable growth, my dear members. My advice to the Big Cheese: cut that out and tell your shareholders to earn money for themselves, Kraft is not a welfare organization.

Next and finally, their new "Bring your own computer" program, which is just a recipe for disaster. Employees will start bringing Macs and Linux boxes, creating a chaos of unprecedented magnitude. Sure, participating employees must comply with company policies regarding software, security and data requirements, but I think this is wrong.

When everyone owns a cheap beige box with 512 MB of RAM, there is a bond that glues all the IT workers, everyone shares the same pain and that common ground fosters teamwork. When one has a larger screen than others, there's envy. When one has an alien technology so different from anyone else, a social breach rips the bond and IT workers cannot relate to one another. This is bad. Worker "A" cannot understand why Worker "B" prefers to use an operating systerm other than Windows XP Professional and that misunderstanding breeds contempt.

It's a well-known fact that companies and governments that favor uniformity over choice of options are the clear winners on the long run. The Soviets had the right approch but their economic system was flawed and profitable growth was not sustainable. Henry Ford was manufacturing cars with only one color option: black. When your staff / population has a dimmed view of what options are available to them, they tend to be happier once you educate them properly.

Like Nimoy once said, the needs of the many outweigh the needs of the few. So to my friends at Kraft, get your act together while there is still time.

Breaking news! CGI to ban dividends forever!

Don't we all have this passionate relationship with money? People who claim they have little interest in money are either liars or .... well they are just liars. Cash is related to life, love and the meaning of the universe.

We had this big meeting this week in Montreal, where we announced that shareholders won't get a dime in dividends. Sure, folks were angry and threw me all sort of veggies when I was on stage, a pineapple even landed 2 feet from me. I'm trying to decipher the message.

If I make my employees more happy, this won't bring me any additional revenues, right? If I make my shareholders happy, they'll buy more wine but this won't create new strategic opportunities. No, I keep money in the bank. Period. Money quote: It's very hard to do something when you don't believe it's the right thing to do.

Then I went with the usual spiel about CGI looking aggressively to expand in the U.S. and Europe. Boilerplate stuff, really, this is the same freaking lines I've been reading for 6 years I guess. 60% of our revenues still come from Canada, I have a hard time convincing analysts that we're a global company. I show them our Ritual Dancers from India, they like the catchy song but this does not translate into additional revenues.

Another good quote: If you want to make sure that you can power through economic times that are uncertain, you want to go where the fish are and it's in financial services and it's in government.

As we all know, there are fat fishes swimming in financial services and especially in government. The mortgage meltdown proved that financial services is inhabited by crooks and all sort of retards who will do absolutely anything for money, so outsourcing their IT allows them to focus on new strategies to package debts into fancy products. As for government, well, money is unlimited and wisdom is scarce, so it's still a pretty good clients.

FYI, we changed the company bylaws to that CGI will never ever pay a single dividend. If me or any future CEO decides one day to pay dividends, the CEO is relieved from duty due to insanity. If the board decides to pay a dividend, they'll be fed to the lions or crocodiles (both species are uncommon in Montreal, we need to address that).

So keep your expectations low, dear members. And get back to work, I need more revenues.