Investing in quality dividend stocks that trade at a depressed valuation allows you to benefit from an attractive yield and long-term capital gains. Valued at a market cap of $1.1 billion, Enghouse Systems (TSX:ENGH) is one such TSX dividend stock that is down almost 75% from all-time highs, raising its forward yield to 6% in December 2025.
Enghouse stock has grossly underperformed the broader markets in the last 10 years. However, if we expand the investment horizon to 20 years, the Canadian tech stock has returned 538% after adjusting for dividend reinvestments.
Let’s see why I’m bullish on this high dividend stock right now.
The bull case of investing in Enghouse stock
Enghouse Systems is a profitable Canadian enterprise software company that uses acquisitions as its primary growth strategy. Operating across more than 25 countries, the firm specializes in buying and holding businesses for long-term sustainability rather than flipping them for quick profits.
The company operates through two main segments.
- The Interactive Management Group focuses on contact centre and customer experience solutions, offering software for voice, email, social media, web chat, and video communications. This division serves financial services, healthcare, education, and telecom sectors with AI-powered tools, analytics, and performance optimization software.
- The Asset Management Group provides specialized solutions for network infrastructure, transit systems, fleet management, and public safety. Products include video streaming, emergency control systems, automated fare collection, and enterprise mobility management delivered through SaaS platforms.
As a cash buyer with no financing requirements, Enghouse offers rapid deal closures and maintains a strong reputation for reliability. Acquisition targets typically include vertically focused software companies with over $5 million in annual revenue and strong recurring income from subscriptions or maintenance contracts.
Enghouse considers both profitable and unprofitable businesses, including carve-outs and divestitures from public or private companies. For new market entries, targets need $20 million-plus revenue with mission-critical software in fragmented industries.
Enghouse reports mixed Q3 results
Enghouse Systems posted mixed third-quarter (ended in July) results as the Canadian software company navigates persistent economic headwinds while maintaining its focus on profitable growth over revenue expansion.
In fiscal Q3, it reported revenue of $125.6 million, down year over year. Its recurring revenue stood at $87.8 million, or 70% of total sales, which provides steady cash flows across business cycles.
Moreover, net income stood at $17.2 million or $0.31 per share, while adjusted earnings before interest, tax, depreciation, and amortization reached $32.3 million, indicating a margin of 25.7%.
The Interactive Management Group division faced accelerating revenue declines as the video conferencing market continues to soften with employees returning to offices.
Enghouse also completed the integration of its Trafi acquisition into the Asset Management Group during the quarter, strengthening its transportation and vertical Software-as-a-Service offerings. The company ended September with $271.6 million in cash and zero debt, providing substantial firepower for future acquisitions.
Is this TSX dividend stock undervalued?
The board recently increased 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, significantly enhancing the yield at cost. Moreover, analysts expect the yearly dividend to increase to $1.40 per share in 2027.
Analysts also forecast the company’s free cash flow to improve 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 around $66 million, indicating a sustainable payout ratio.
If ENGH stock is priced at 10 times forward FCF, it should gain 30% over the next 12 months. If we adjust for dividends, cumulative returns could be closer to 36%.
