Buying a stock after it has fallen requires a different mindset than buying one that’s making new highs. Instead of chasing momentum, you’re actually asking a much harder question: has the market correctly priced the risks, or has it become too pessimistic about the company’s future?
That distinction matters because some stocks deserve lower valuations than they already have, while others continue making consistent financial progress even as investor sentiment deteriorates. Open Text (TSX:OTEX) falls into the second category in my opinion. The stock has spent the past year navigating slower technology spending and changing investor expectations, yet it continues to generate strong free cash flow, grow its cloud business, and return capital to shareholders through dividends and buybacks. That’s not what you’d expect from a business in decline.
Let’s look at why Open Text remains a top Canadian dividend stock I’d be comfortable buying after its recent pullback and holding for the long term.
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A top Canadian dividend stock with AI exposure
To give you a little background, Open Text is a Waterloo-based information management firm that provides software and services for global enterprises, small and medium-sized businesses, and governments. Its platform helps organizations manage content, cybersecurity, business networks, information technology operations, analytics, and the data needed for artificial intelligence (AI) workflows.
Although OTEX stock has gained nearly 5% over the last three months, it remains 44% below its 52-week high. As a result, it now trades at $31.39 per share and carries a market cap of $7.6 billion.
Open Text is one of the few Canadian technology stocks that combines enterprise software growth with a reliable dividend, as it currently yields about 4.9%.
Recent results point to durable demand
Note that Open Text reports its earnings in U.S. dollars, and its third-quarter fiscal 2026 (ended in March) results showed that demand for its services has not disappeared. The tech firm’s total quarterly revenue rose 2.2% year-over-year (YoY) to US$1.3 billion. Its cloud revenue jumped by 6.6% YoY to US$493 million, marking the company’s 21st consecutive quarter of organic cloud growth.
On the profitability side, Open Text delivered a strong 13% net profit margin and an adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) margin of 34%. It generated US$355 million in operating cash flow and US$305 million in free cash flow during the quarter.
Why long-term investors may look past the dip
In addition to its strong financials, Open Text is also positioning itself around several long-term technology trends. The company plans to invest around US$120 million in Ireland over three years. Interestingly, these investments are linked to agentic AI, cybersecurity, cloud, and digital operations capabilities.
At the same time, its US$150 million divestiture of Vertica, a non-core structured data analytics platform, should help Open Text concentrate more capital and attention on its core businesses.
Given its large customer base, positive AI momentum, strong margins, meaningful free cash flow, and a nearly 5% dividend yield, I find this undervalued dividend stock really attractive to buy on the dip, especially for patient investors.
