Meta Platforms (NASDAQ: META) is one of the largest tech companies in the world. And when it announced a dividend, the company’s stock price surged more than 20%. Of course, there were other factors at play. But it begs asking – is Open Text Corporation (TSX: OTEX) worth buying, at least for its dividend?
After all, Open Text’s dividend yield currently sits at 2.6%. That places the stock almost into what I would consider to be dividend stock territory.
Let’s dive into why this software growth play is also a dividend stock worth considering here.
What to know about Open Text
Open Text Corporation is a Canada-based tech giant that enables clients to archive, aggregate, retrieve, and search unstructured information through its software. It specializes in delivering software services and solutions for managing information to government entities, small and large businesses, and consumers.
In addition, the company offers a wide range of products and solutions for enterprise content management, including AI and analytics, business networks, digital processes automation, and security. Open Text Corporation has a global presence spanning regions of America, the Middle East, Europe, and Africa.
Recent financials point in the right direction
Open Text is what I would view as a stealthy large-cap company most investors are overlooking. With a market capitalization of nearly $14 billion at the time of writing, this isn’t some small potatoes operation. Rather, the company is an impressive operator, with a rather impressive long-term chart.
The company’s growth prospects have continued to drive strong fundamentals. And while OTEX stock currently trades at roughly 80 times earnings, it’s also a company with some incredible year-over-year growth (in its past quarter, revenue growth came in at more than 70%).
Thus, from a price/earnings-to-growth (PEG) perspective, this stock could be among the cheapest of its peer group. And with the aforementioned dividend yield of more than 2.6%, there’s even more income investors can expect, which will juice their total returns over time (even more if these dividends are reinvested).
Impressively, Open Text produced free cash flows of $305 million this past quarter, which (when annualized), put the company’s overall valuation multiple at a reasonable 11.4 times cash flow. That’s the sort of company I think long-term investors want to consider in this environment, particularly those seeking growth.
Why buy now?
This begs the question – with so much uncertainty in the market, why place a bet on a high-growth company that could get derailed for any number of reasons?
Well, Open Text’s core business model is relatively insulated. Enterprises need software solutions to run, whether they like it or not. Bull market or bear market, the company’s core products and services will remain in high demand. Thus, the company’s margins and growth are somewhat sustainable.
Over the long term, I expect to see Open Text’s historical performance continue. This stock remains a solid buy in my books for those seeking an overlooked Canadian growth stock to buy right now.
