Here’s the bottom line upfront: Enghouse Systems (TSX:ENGH) is a profitable, debt-free Canadian software company with an 8% dividend yield, $260 million in cash, and 18 straight years of dividend hikes.
If you’re looking for an undervalued dividend stock with real upside in 2026, this could be it.
The Canadian tech stock has been beaten down along with the broader software sector. Valued at a market cap of $866 million, ENGH stock is down 75% below all-time highs, raising the yield to 8%.
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Can the TSX dividend stock rebound?
Investors have punished software stocks in recent months on fears that artificial intelligence could disrupt enterprise software. Enghouse is not a high-flying growth story in danger of disruption. It’s a steady, cash-generating business that serves niche markets like contact centres, transportation software, and telecom networks.
In fiscal Q1 of 2026, it reported revenue of $120.1 million, down from $124 million in the year-ago period. It reported adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $31.1 million, indicating a margin of 26%.
Analysts forecast free cash flow to expand from $99.5 million in fiscal 2026 to $131 million in 2028. In this period, the annual dividend is projected to increase from $1.24 per share to $1.60 per share.
If the TSX dividend stock is priced at 10 times forward FCF, it should return more than 50% over the next 18 months. If we adjust for dividends, cumulative returns could be closer to 60%.
A growing dividend payout
In March 2026, Enghouse’s board approved a 3.3% dividend increase, lifting the quarterly payout to $0.31 per share. That marks 18 consecutive years of dividend growth, a streak few Canadian companies can match.
With TSX stock trading at depressed levels, that payout now represents a yield close to 8%. The company also ended the quarter with $260.2 million in cash and short-term investments and carries no debt. That’s a fortress balance sheet.
Chief Executive Officer Stephen Sadler acknowledged that the decision to slow dividend growth this year was intentional. Management is shifting capital toward share buybacks, which Sadler described as a better use of funds than paying higher dividends when the stock is trading at these levels.
“Our current stock price is better than a lot of the acquisitions,” Sadler said on the call. That’s a frank admission from a CEO who has spent decades buying businesses at smart prices.
Enghouse and its AI moat
One of the biggest overhangs on software stocks right now is artificial intelligence. Investors worry that AI will hollow out demand for enterprise software. Sadler directly pushes back on that narrative.
He compared the AI panic to early predictions about driverless cars. “I’m looking out the window right now,” he said on the call. “I don’t see very many.” His point: transformative technology takes far longer to arrive than the headlines suggest.
Enghouse already uses AI in its products, including agent assist tools, quality management systems, voice transcription, and code development. Notably, Sadler called out Claude specifically as a coding tool the team has found effective.
But the company isn’t burning cash on unproven AI projects to impress investors. It set up small, focused AI consulting teams in both business segments to work directly with customers, learn from real use cases, and, importantly, get paid for it.
That’s a fundamentally different approach from peers that are laying off staff and attributing it to AI while struggling to explain what the AI has achieved.
The setup for 2026
Enghouse sits at the intersection of several tailwinds.
- Software valuations are depressed, meaning acquisitions are more attractively priced than they’ve been in years.
- A cash-rich balance sheet means the company can act when the right deal appears.
- And the stock’s own low valuation means buybacks create immediate value for remaining shareholders.
The business isn’t without challenges, given that recurring revenue dipped slightly year over year. Churn from its Lifesize video business remains a headwind, though management says it’s stabilizing.
Still, for income-focused investors willing to look past short-term noise, Enghouse offers something rare: a proven dividend grower, a conservative management team with skin in the game, and a stock that management itself is buying back at current prices.
That’s a combination worth paying attention to.
