Tech stock Open Text Corp. is now a dividend aristocrat

Blue chip technology stock Open Text Corporation did well in the first half of fiscal 2017. It’s adapting to changes in the technology industry. To that end, the company made a big acquisition and issued many shares. It has also become a dividend aristocrat. Open Text remains a buy for share price gains and growing dividends.

Waterloo, Ontario-based Open Text Corporation (TSX—OTEX; NASDAQ—OTEX), one of our Key stocks, has split its shares two-for-one. That’s why the share price fell, of course. The company’s results were solid in the first half of fiscal 2017 (fiscal years end on June 30).

The split shows that management wants to make its shares affordable to individual investors of modest means. The fact is, it’s easier to come up with C$4,350 to buy a ‘board lot’ of 100 shares, than to come up with C$8,700. We find that too many companies—particularly American companies—seem to care only about attracting large institutional investors, for whom a high share price is no obstacle.

(Note that Open Text now trades under the symbol OTEX on the Toronto Stock Exchange. The TSX now lets companies have four-letter stock symbols. Open Text already trades under the same symbol OTEX on the NASDAQ stock exchange in the U.S.)

Open Text is the largest independent software provider of Enterprise Information Management.

Open Text’s 2016 earnings increased

In the six months to December 31, 2016, Open Text earned an adjusted $238.7 million, or 97 cents a share (all figures in U.S. dollars unless preceded by a C). This was up by 5.4 per cent from an adjusted $224.9 million, or 92 cents a share, a year earlier.

Open Text has changed significantly since New Year’s Eve. On January 23, the company paid $1.6 billion to acquire Dell EMC’s Enterprise Content Division. Chief executive officer and chief technology officer Mark Barrenechea said: “This acquisition adds a world-class team of Content Management experts and significantly increases our presence in key verticals such as Life Sciences, Pharmaceuticals, Energy, Engineering and Public Sector Industries, while expanding our Cloud Services offerings and increasing our geographical reach into new countries.”

To help pay for the acquisition, Open Text issued 9.9 million common shares to investors. With the share split, the new issue increased the share count by 19.8 million.

Mr. Barrenechea noted an industry change. He said: “Customers are seeing greater value from Digitalization, and with Release 16 and our recent acquisitions, Open Text is well positioned to enable the next wave of digital transformation.” The turbulent tech industry always changes. It’s a plus that management keeps abreast of industry developments.

A new dividend aristocrat

Key stock Open Text Corp. began paying dividends in fiscal 2013. That year it paid 7.5 U.S. cents a share, adjusted for the two-for-one split. It was up from nothing the year before, of course.

The dividend has risen every year since then: in fiscal 2014, an annual 31 cents a share; in fiscal 2015, 36 cents a share; in fiscal 2016. 41.5 cents a share.

The current annual dividend rate is 46 cents a share. That marks dividend increases for five years in a row.

Convert U.S. dollars to loonies and you come up with C$0.60 a share. That yields a decent 1.4 per cent. We expect the company to continue to raise its dividends in the years ahead. That’s another reason to buy Open Text.

Open Text remains a buy for long-term share price gains as well as decent and growing dividends.

 

This is an edited version of an article that was originally published for subscribers in the February 17, 2017, issue of The Investment Reporter. You can profit from the award-winning advice subscribers receive regularly in The Investment Reporter.

The Investment Reporter, MPL Communications Inc.
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