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© Pedro Nunes

Constellation Software Inc. plans to increase its dividend to $1 (U.S.) every three months, a move that will effectively double its annual yield to just over five per cent.

Shares in the company gained four per cent, or $3.08, to $79.82 in early afternoon trading on the Toronto Stock Exchange.

The Toronto-based software company said Tuesday that it will begin its quarterly payout April 2 to shareholders of record as of March 12.

It currently pays out an annual dividend of $2, which amounts to a yield of 2.5 per cent based on Tuesday's stock price.

The company said the dividend will allow shareholders to benefit from its free cash flow, while it also plans to retain enough capital for acquisitions and organic growth.

However, the board says it will adjust the amount paid out from time to time.

The initial new dividend amount is based on an estimate of free cash flow in excess of the company's historical rate of investment in acquisitions.

The company says it also has a $160-million revolving credit facility that can be used to fund future acquisitions.

The board also announced it has concluded a strategic review of alternatives – an exercise that can often result in the sale of a company, new partnerships or new share issues – that began April 4.

Constellation is a Toronto-based company with an active acquisition program focused on companies that serve business software markets.

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