By Karen Thomas, MSc, CFA at The Motley Fool Canada
Open Text Corp. (TSX:OTEX) is a Canada-based information management company that provides software and services to help companies best deal with and manage the increasing volumes of information that is a reality everywhere we look. The better a company’s ability to organize it, analyze it, and derive insights from it, the more valuable it becomes to its business. This is where Open Text comes in.
Why Open Text?
Open Text is a leader in the information management market, a large and growing market of approximately $200 billion. In fact, the company’s cloud-based platform of software and solutions has proven itself to be a compelling proposition. This has allowed Open Text to grow over the last few years and strengthen its competitive position during this time period.
In the five years ended June 30, 2025, Open Text’s revenue has increased 53% to 5.2 billion as the company positioned itself to benefit from rapidly increasing cloud content and artificial intelligence growth. Open Text achieved this by growing organically as well as by acquisitions. And, this Canadian dividend growth stock also increased its earnings, profitability, and dividends paid out to shareholders.
Data is the foundation of every industry, economy, and company, being especially important in sectors like healthcare and banking. Open Text has become a leader in data management. As the Open Text’s management put it, the company is “built for this moment”.
Latest results
This Canadian dividend growth stock reported its third quarter fiscal 2026 results back in May. These results showed that the business is strengthening once again and seeing increasing momentum in its cloud business.
As a result, revenue came in at $1.3 billion, with record adjusted earnings before interest, taxes, and depreciation (EBITDA) of $1.4 billion and record free cash flow of $821 million. The company posted growth rates of 4.2% and 21.7% respectively. Finally, Open Text’s earnings per share (EPS) was $1.01 compared to $0.82 in the same period last year, for a growth rate of 23%.
Looking ahead
As we look to the remainder of fiscal 2026, Open Text expects to see strengthening cloud revenue growth and cloud bookings as momentum in the business continues to accelerate. This will translate to overall revenue growth of one to two percent, with cloud revenue growth in the 4% to 5% range. In the long term, Open Text stock will increasingly benefit from clients continuing to migrate to the cloud.
Finally, Open Text expects to continue to improve its balance sheet, profitability, and cash flow generation metrics. In fact, the company recently increased its free cash flow growth guidance to 16% to 20% from the prior guidance of 12%–16%.
Valuation
Open Text stock is trading at roughly 10 times earnings and 1.3 times book value, which is what makes it a dirt-cheap Canadian dividend growth stock. Meanwhile, its free cash flow is increasing significantly as are its expected earnings over the next few years. In fact, Open Text stock’s EPS growth is expected to ramp up in the company’s fiscal 2028 and beyond, as cloud and AI adoption significantly increase.
The bottom line
Open Text stock is dirt-cheap. And this Canadian dividend growth stock is also yielding 5.2%, as its free cash flows are increasing along with momentum in its cloud business. I don’t think that this opportunity to buy Open Text stock at such cheap valuations will last very long, as I think the stock is likely to see a strong rally in the near future.
The post A Dirt-Cheap Canadian Dividend Growth Stock Built for the Long Haul appeared first on The Motley Fool Canada.
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Fool contributor Karen Thomas has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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