- Dividend Brief
- Posts
- The Enterprise Software Turnaround Paying You to Wait
The Enterprise Software Turnaround Paying You to Wait
A beaten-down enterprise software name paying you ~4.6% while it rebuilds around AI. You don't see this setup often.
One Canadian software business is trading 39% below its 52-week high, spitting out $808 million in free cash flow last fiscal year, and last quarter revealed that the turnaround is finally taking hold.
Ask ten people in the US about the ticker, and nine will stare at you blankly. That’s precisely why it's on my desk this week.
Standout Picks Now (Sponsored)
Every market cycle produces a handful of companies that dramatically outperform the rest.
Our latest screening has identified the 5 Stocks Set to Double — companies showing rare early-stage momentum traits.
These picks carry the same indicators that historically precede strong rallies.
Past reports highlighted stocks that surged +175%, +498%, and +673%.
Get the Free 5 Stocks Set to Double Report.
*This free resource is being sent by Zacks. We identify investment resources you may choose to use in making your own decisions. Use of this resource is subject to the Zacks Terms of Service.
*Past performance is no guarantee of future results. Investing involves risk. This material does not constitute investment, legal, accounting, or tax advice. Zacks Investment Research is not a licensed dealer, broker, or investment adviser.
You want yield. You don't want to overpay for it. That's the bind pretty much every income investor is stuck in right now. The safest dividend names in the S&P trade at premiums that leave zero margin if anything goes sideways.
And the fat yields are mostly busted telecoms and REITs with balance sheets that keep me up at night.
There's a third door most people walk right past.
Large-cap enterprise software. Based in Canada. Trading well off its highs. Paying (and raising) a dividend every year since 2013.
The turnaround is finally showing up in the actual numbers. And you're collecting close to 4.6% to sit tight while the market catches on.
Meet the Software Business Hiding in Plain Sight
The name is OpenText (NASDAQ: OTEX). Never heard of it? Good. That's kind of the point.
OpenText is Canada's largest software company.
They sell information management software, which is a fancy way of saying they're the plumbing behind how Fortune 500 companies wrangle documents, workflows, cybersecurity, and now AI-driven data operations.
Boring? Absolutely. Sticky? Extremely. Worth your attention? Read on.
Over 120,000 customers globally. Mostly recurring subscription contracts. Dividend paid for more than a decade. This isn't some cash-burning startup chasing a story.
It's a mature, cash-spinning business the market has kicked in the teeth while management retools for what comes next. Worth a closer look on your end.
Why the AI Pivot Actually Matters Here
Every software company on earth is talking about AI. OpenText is actually shipping it.
Their AI Cloud platform (branded Aviator) sits on top of the existing information management stack and lets you query, summarize, and act on the mountains of unstructured data your enterprise already stores with them.
Here's the piece that matters if you're collecting the dividend. Aviator lifts revenue per customer without OpenText having to go win new logos.
Existing clients pay more to unlock AI features on contracts they already signed. High-margin. Sticky. Compounding.
And it flips their legacy positioning from anchor to moat. They already sit on the customer data competitors can't touch.
The Street hasn't rerated the stock for any of this. That's your window.
Elite Picks (Sponsored)
This report focuses on a narrow group of stocks identified through a detailed screening process.
Analysts apply a combination of metrics to narrow down potential opportunities.
Past selections have shown strong momentum, but no outcomes are guaranteed.
The newest edition is now open for access.
Get the report now.
*This free resource is being sent by Zacks. We identify investment resources you may choose to use in making your own decisions. Use of this resource is subject to the Zacks Terms of Service.
*Past performance is no guarantee of future results. Investing involves risk. This material does not constitute investment, legal, accounting, or tax advice. Zacks Investment Research is not a licensed dealer, broker, or investment adviser.
The Cash Flow Story the Street Hasn't Repriced
Tune out the noise about the stock drop and look at what the business actually pumps out. OpenText threw off $808 million in free cash flow in fiscal 2026 ($1.01 billion of operating cash flow less $199 million of capital spending), up from $687 million the year before.
Fiscal Q4 was solid. Margins held. Cloud bookings ticked higher. That is the setup you want to weigh.
Valuation is where my ears perked up. Trailing P/E around 12x. Enterprise software peers? 20x and up. Even a partial rerating puts real upside on top of the yield.
Action: Accumulate OTEX at current levels around $24-$25 ahead of fiscal Q1 2027 results in early November. The stock sits well below where you likely have it on your radar, and that's a feature, not a bug.
AI shift (Sponsored)
Artificial intelligence is changing the way companies operate—and one new initiative linked to Elon Musk is attracting attention.
According to a veteran market analyst, the biggest opportunity may not be the household names, but a little-known company supporting the technology behind the scenes.
His free briefing reveals the trend and the stocks he's watching.
Watch the Free Briefing
The External Tailwinds Working In Your Favor
A few macro currents are running your way here, and most people aren't connecting them.
First, enterprise IT budgets. They're rotating back toward AI-enabled data platforms after two years of belt-tightening. That shift is showing up in the software spending forecasts from the big consultancies. Aviator sits right in that budget line, which is where your attention should be.
Second, security. They own the old Micro Focus assets, and the enterprise cybersecurity build-out is still going. Competitors are stretched. Consolidation is coming.
Third, currency. A stronger dollar or a weaker loonie helps the reported numbers because a chunk of their costs sit in CAD while revenue is largely USD.
None of this is speculative. It's already in motion.
Trivia: Johnson & Johnson is one of Wall Street's most celebrated dividend payers. How long has the company been raising its dividend consecutively? |
What the Latest Numbers Actually Tell You
Fiscal Q4 was the first real proof the turnaround has legs. Cloud revenue grew. Operating margins expanded. Management reiterated the fiscal 2027 targets.
Debt paydown from the Micro Focus deal is running on schedule, which matters because that leverage is what spooked you in the first place.
Insider ownership at the exec level has been steady. The buyback program is still active. When management is repurchasing shares at these multiples while paying down debt at the same time, that tells you what they think about intrinsic value versus the market.
You're getting a business generating cash, deleveraging, buying back stock, and paying you close to 4.6% to be patient. Try finding another combination like that right now.
The Dividend Story: 12+ Years and Counting
Dividend paid continuously since 2013. Raised multiple times along the way. Current annual payout of $1.12 against a share price around $24.52 puts the trailing yield near 4.6%.
The payout ratio is comfortable: $268 million of dividends paid last fiscal year against $808 million of free cash flow, roughly 33%.
So your dividend has room even if earnings hit a bump. And management has said, out loud, this is a priority use of cash alongside debt reduction and buybacks.
Compare that to stretched REITs at 5%, or tobacco names paying 7% while the underlying business withers. Here you get a growing dividend from a growing business, priced like the growth isn't coming back.
Action: If you're building an income portfolio, size this as a mid-weight, not a full anchor. Layer in over two or three tranches over the next 60 days so you've got dry powder if it dips further before November earnings.
Where the Bear Case Actually Has Teeth
I owe you the other side. Three things could break this.
One, enterprise software spending. If the AI capex boom cools and IT budgets get carved into 2027, Aviator monetization slows and the rerating case gets thinner.
Two, the debt. They still carry meaningful leverage from Micro Focus. Two disappointing free cash flow quarters in a row (against the $808 million annual base) and the dividend safety chatter starts again fast.
Three, competition. Microsoft, ServiceNow, Salesforce, all pushing into information management and enterprise AI. OpenText has customer entrenchment. That doesn't make them immune over a five-year horizon.
Risk management here is simple. Reassess if shares break below $20, just under the 52-week low. That would tell you the market is seeing something in the numbers you aren't.
Pulling It All Together
Here's what's on the table. Mid-cap enterprise software business. 120,000 customers. Real AI product actually shipping. $808 million of free cash flow. Paying close to 4.6% while the market waits to see if the turnaround holds.
Stock is roughly 39% off its 52-week high of $39.90. Valuation assumes nothing works. Fiscal Q1 2027 in early November is your next catalyst, and any real evidence of Aviator monetization or margin expansion could kick off the rerate.
You don't need this to become a growth darling. You need it to grind higher as cash flow grows and the dividend keeps compounding. Boring. Achievable. And boring is exactly what income portfolios need right now.
Setup Scorecard
Entry Zone: Current levels around $24-$25
Target: $28
Stop Loss: Reassess below $20
Catalyst Timeline: Fiscal Q1 2027 earnings in early November; Aviator adoption updates through Q4 2026
Confidence Level: Medium-High. The business generates cash and the dividend is well covered. Debt is the one variable keeping this from a straight "high" rating.
That’s all for today’s edition of the Dividend Brief.
Thanks for reading, and if you have any feedback or dividend stocks you want me to take a look at, just reply to this email!
—Noah Zelvis
DividendBrief.com