The Motley Fool

Nervous Investors: 1 Canadian Growth Stock to Withstand Volatility

Image source: Getty Images

Are stocks still cheap? I’d argue that the answer is a resounding no. Aside from oil and financial companies, there are not a whole lot of stocks that can be labeled as cheap today. That doesn’t necessarily mean that there isn’t anything else to buy. 

One company worth investigating is Open Text (TSX:OTEX)(NASDAQ:OTEX). I haven’t yet re-entered a position, but I am considering buying into the company. It is a solid growth company with a great dividend. On top of that, Open Text is a software-based company that should be less impacted by the negative impacts of pandemic-based lockdowns.

A business that can withstand the lockdown

The pandemic sweeping the globe has exposed weaknesses with conventional business models and has opened the door to a new way of operating. A lockdown means that more people will become accustomed to working online out of their homes. I’m quite certain that there are a number of businesses considering a more permanent move to a decentralized system.

This company is positioned to profit from the transition to more digitized workspaces. It has a number of businesses that should be able to withstand the accelerated transition to a web-based society. Open Text’s cybersecurity business, bolstered by its purchase of Carbonite late last year, will be in high demand, as more and more companies conduct their operations, meetings, and transactions online.

Open Text also has a business network arm that should be in high demand, as companies transition their operations to online workspaces. It is likely to be the case that these transitions, already in progress before the pandemic, will be expedited by companies like Open Text. The trend could continue following the return to normal business operations.

A profitable company

The company’s Q2 2020 results were pretty impressive. One of the best numbers in my mind was that 73% of its revenues are now from recurring sources. Total revenues were up 4.9% year over year and recurring revenues were up even faster, up 6.5% over the same period a year earlier. 

In addition to excellent operational results, Open Text also pays a rather healthy dividend. The company currently pays out a dividend of US$1.01 on an annual basis, or a yield of 1.95% at the current share price.

The bottom line

Open Text operates in a growth area of the economy, cybersecurity, and the transition to digital workplaces. Online solutions were already a profitable business before the pandemic. The work-from-home era definitely got a shot in the arm from the lockdown. It is likely that the transition will continue in the future. 

I think that you could probably pick up Open Text today, since it is still trading well below its highs and will do well over the long term. It is not the fastest-growing company, and it does have a fair bit of debt for a technology company. Its growth is steady, though, and its dividend is solid. If you are looking for a Canadian tech company that will give you a steady income stream, this would be a good one to buy.

This Tiny TSX Stock Could Be the Next Shopify

One little-known Canadian IPO has doubled in value in a matter of months, and renowned Canadian stock picker Iain Butler sees a potential millionaire-maker in waiting...
Because he thinks this fast-growing company looks a lot like Shopify, a stock Iain officially recommended 3 years ago - before it skyrocketed by 1,211%!
Iain and his team just published a detailed report on this tiny TSX stock. Find out how you can access the NEXT Shopify today!

Click here to discover how!

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Kris Knutson has no position in any of the stocks mentioned. The Motley Fool recommends Open Text and OPEN TEXT CORP.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.