Investing in high quality dividend shares that commerce at a depressed valuation means that you can profit from a horny yield and long-term capital positive aspects. Valued at a market cap of $1.1 billion, Enghouse Methods (TSX:ENGH) is one such TSX dividend inventory that’s down nearly 75% from all-time highs, elevating its ahead yield to six% in December 2025.
Enghouse inventory has grossly underperformed the broader markets within the final 10 years. Nevertheless, if we broaden the funding horizon to twenty years, the Canadian tech inventory has returned 538% after adjusting for dividend reinvestments.
Let’s see why I’m bullish on this excessive dividend inventory proper now.
The bull case of investing in Enghouse inventory
Enghouse Methods is a worthwhile Canadian enterprise software program firm that makes use of acquisitions as its main development technique. Working throughout greater than 25 international locations, the agency focuses on shopping for and holding companies for long-term sustainability moderately than flipping them for fast income.
The corporate operates via two most important segments.
- The Interactive Administration Group focuses on contact centre and buyer expertise options, providing software program for voice, electronic mail, social media, internet chat, and video communications. This division serves monetary companies, healthcare, schooling, and telecom sectors with AI-powered instruments, analytics, and efficiency optimization software program.
- The Asset Administration Group supplies specialised options for community infrastructure, transit methods, fleet administration, and public security. Merchandise embrace video streaming, emergency management methods, automated fare assortment, and enterprise mobility administration delivered via SaaS platforms.
As a money purchaser with no financing necessities, Enghouse gives speedy deal closures and maintains a powerful repute for reliability. Acquisition targets usually embrace vertically centered software program corporations with over $5 million in annual income and robust recurring revenue from subscriptions or upkeep contracts.
Enghouse considers each worthwhile and unprofitable companies, together with carve-outs and divestitures from public or personal corporations. For brand spanking new market entries, targets want $20 million-plus income with mission-critical software program in fragmented industries.
Enghouse studies blended Q3 outcomes
Enghouse Methods posted blended third-quarter (resulted in July) outcomes because the Canadian software program firm navigates persistent financial headwinds whereas sustaining its give attention to worthwhile development over income enlargement.
In fiscal Q3, it reported income of $125.6 million, down yr over yr. Its recurring income stood at $87.8 million, or 70% of complete gross sales, which supplies regular money flows throughout enterprise cycles.
Furthermore, web revenue stood at $17.2 million or $0.31 per share, whereas adjusted earnings earlier than curiosity, tax, depreciation, and amortization reached $32.3 million, indicating a margin of 25.7%.
The Interactive Administration Group division confronted accelerating income declines because the video conferencing market continues to melt with staff returning to places of work.
Enghouse additionally accomplished the mixing of its Trafi acquisition into the Asset Administration Group through the quarter, strengthening its transportation and vertical Software program-as-a-Service choices. The corporate ended September with $271.6 million in money and 0 debt, offering substantial firepower for future acquisitions.
Is that this TSX dividend inventory undervalued?
The board just lately elevated the quarterly dividend from $0.26 to $0.30 per share. Enghouse has raised its annual dividend from $0.27 per share in 2016 to $1 per share in 2024, considerably enhancing the yield at price. Furthermore, analysts anticipate the yearly dividend to extend to $1.40 per share in 2027.
Analysts additionally forecast the corporate’s free money circulate to enhance from $104.5 million in 2025 to $142 million in 2027. Given a dividend payout of $1.20 per share, the annual dividend expense is round $66 million, indicating a sustainable payout ratio.
If ENGH inventory is priced at 10 occasions ahead FCF, it ought to achieve 30% over the following 12 months. If we regulate for dividends, cumulative returns might be nearer to 36%.
