Valued at a market cap of $1.3 billion, Enghouse Systems (TSX:ENGH) is a Canada-based tech company that is down 71% from its all-time highs. However, the ongoing pullback has raised the tech stock’s dividend yield to 5%.
Enghouse Systems develops enterprise software solutions through two divisions:
- Interactive Management Group offers customer interaction software, including contact centres and video collaboration solutions, for industries such as insurance and healthcare.
- Asset Management Group provides network infrastructure and fleet management solutions to the telecom, transit, and public safety sectors worldwide.
Let’s see if you should buy this TSX tech stock for its 5% dividend yield.
Is Enghouse stock a good buy?
In fiscal Q2 2025 (ended in April), Enghouse reported mixed results. Its revenue fell by 0.8% year over year to $124.8 million as the company aims to focus on its strategic shift towards recurring revenue streams.
Enghouse’s results reflect broader market headwinds, including geopolitical instability, cautious enterprise spending, and delays in technology adoption cycles.
Investors were concerned about its narrowing profit margins, as adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) declined from $35.7 million to $28.6 million over the last 12 months. Its EBITDA margin declined to 22.9% in fiscal Q2 from 28.4% in the year-ago period, while net income stood at $13.5 million, or $0.24 per share, down from $20 million, or $0.36 per share, in the same period last year.
Enghouse attributed the margin compression to increased software-as-a-service-related costs, acquisition integration expenses, and slower cost optimization following its business unit restructuring.
However, its recurring revenue now accounts for 69.1% of total sales, up from 67.5% last year. This SaaS and maintenance revenue base provides predictable cash flows and insulation against economic volatility.
CEO Stephen Sadler highlighted sector-specific headwinds affecting both business segments. The Asset Management Group is facing slower-than-expected transitions from 4G to 5G networks, while the Interactive Management Group is contending with enterprise hesitation regarding AI investments, despite widespread interest.
Enghouse’s financial strength remains a key differentiator. It ended Q2 with $263.5 million in cash and no debt, providing significant flexibility for acquisitions and capital allocation. Recent purchases of Margento and Trafi (contributing $1.5 million in Q2 revenue) demonstrate continued inorganic execution in the mobility sector.
Is this TSX dividend stock undervalued?
In the near term, ENGH stock is likely to face pressure from market uncertainty and challenges in monetizing AI. However, Enghouse’s debt-free balance sheet, growing recurring revenue base, and disciplined acquisition strategy position it well for long-term value creation. The quarterly dividend of $0.30 per share reflects management’s confidence in the company’s sustainable cash generation, despite current headwinds.
Analysts tracking ENGH stock forecast free cash flow to decrease from $130 million in fiscal 2024 to $121 million in fiscal 2026. Enghouse’s annual dividend expense is approximately $66 million, which provides the company with sufficient room to maintain and potentially increase its payouts in the near term.
Bay Street expects ENGH stock to raise its annual dividend from $1 per share in fiscal 2024 to $1.48 per share in fiscal 2027. This means the yield-at-cost for the TSX dividend stock could increase to 6.3% over the next two years.
Analysts remain bullish, forecasting the TSX stock to gain 13% over the next 12 months, based on consensus price target estimates.
