1 Miraculous TSX Dividend Stock Down 14% to Hold Forever

Not only does this stock pay dividends, but it’s also a decades-old, safe technology investment.

Amy Legate-Wolfe ❯

Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Before joining Motley Fool Canada, she wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Follow Amy on LinkedIn and Canada Stock Digest.

Published October 30, 2024 5:00 am EDT

When it comes to a deal of a dividend stock, it doesn’t get much better than OpenText (TSX:OTEX). OpenText is a Canadian technology powerhouse that specializes in enterprise information management solutions. The stock is down 14% year to date — making now an interesting time to buy and then hold for the long haul. Let’s dive into why OpenText stock could be a golden ticket for dividend stock enthusiasts and long-term holders.

Recent moves

In its most recent earnings report for the fiscal year ending June 2024, OpenText stock posted $5.77 billion in revenue, reflecting a quarterly revenue decline of 8.6% year-over-year. While this dip might raise eyebrows, the company maintained a healthy profit margin of 8.06%. Plus an earnings before interest, taxes, depreciation and amortization (EBITDA) of $1.57 billion. More importantly, the firm’s operating cash flow remains robust at $967.69 million. This demonstrates that despite some short-term revenue challenges, OpenText is still capable of generating consistent cash flows. This supports its dividend payments.

OpenText stock has also made headlines recently for its strategic decisions to enhance cloud services and streamline operations. The dividend stock’s focus on operational efficiency and cutting costs has been well-received by analysts, even as they acknowledge the short-term revenue challenges. As OpenText stock works to integrate its acquisitions and expand into AI-driven products, many investors view this transition period as a natural evolution for the firm, setting it up for long-term success.

The vision

One of the most compelling reasons to consider OpenText stock as a long-term hold is its solid dividend history. The current forward annual dividend yield sits at 3.04%, with a forward dividend rate of $1.42. Over the past five years, the dividend stock has maintained an average dividend yield of 2.18%, reflecting its commitment to rewarding shareholders. What’s more, with a payout ratio of 58.48%, OpenText is well-positioned to continue its dividend payments. All while maintaining enough cash flow for business operations and potential growth.

Meanwhile, OpenText’s management, led by CEO Mark J. Barrenechea, has been pivotal in guiding the company through an era of rapid technological evolution. The dividend stock’s focus on cloud-based solutions and artificial intelligence (AI) positions it for future growth, despite current market fluctuations. Barrenechea’s leadership and the strategic acquisitions OpenText stock has made over the years. Such as the purchase of Carbonite and Micro Focus, highlight the company’s vision of expanding its capabilities and market reach.

A deal in the making

Looking ahead, OpenText’s growth potential is promising. The increasing reliance on digital transformation and cloud services globally places the company in an advantageous position. With its expanding product suite and strong market presence, OpenText stock is likely to benefit from long-term trends such as enterprise automation and AI-driven insights. Additionally, OpenText’s consistent investments in research and development will likely yield new innovations, solidifying its place in the tech landscape.

Now, let’s talk about that 14% stock price decline. While it may look worrying on the surface, market fluctuations are common in the tech sector, especially with companies in transition phases. This dip presents an excellent opportunity to buy shares at a discount. With the stock down from its 52-week high of $60 to around $46, value-focused investors have the chance to get in at a lower price, all while reaping the benefits of a strong dividend yield and a company poised for long-term growth.

Bottom line

OpenText’s leadership team has demonstrated time and again that they are capable of steering the company through both challenges and growth periods. Barrenechea, who has been with the company since 2012, has overseen many successful acquisitions and helped OpenText stock grow into a market leader in the enterprise information management space. Investors can take comfort in management’s ability to navigate these current headwinds and position the company for future success.

For dividend investors, OpenText stock represents a rare combination of reliable dividends, solid cash flows, and significant growth potential. The company’s strategic focus, seasoned management, and ability to generate consistent revenue even during tough times make it a strong candidate for long-term investors seeking both income and growth.