These 3 Under-the-Radar Tech Stocks Pay Strong Dividends
Investors might not typically look to the tech sector for dividends, but these three unheralded names offer solid yields.
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Investors typically do not expect tech stocks to pay dividends, and for good reason. For many years, very few tech stocks paid dividends to shareholders.
But this has changed greatly over the past decade, and now many tech stocks pay dividends.
The benefit of buying tech stocks that pay dividends is in the potential for capital appreciation as well as income. This article will discuss three under-the-radar tech stocks that do not get much coverage, but have solid dividend yields with strong dividend growth potential.
1. Open Text Corporation (OTEX)
Open Text OTEX was founded in 1991 and trades under the same ticker symbol on the NASDAQ and TSX. It’s a tech company that provides information management solutions, including cloud solutions. It operates in 180 countries and reports in USD, which is also the currency we’ll use in this report unless otherwise noted. Its annual recurring revenue (ARR) represents about 80% of total revenue. ARR includes revenues from cloud services and subscriptions, and customer support.
Open Text reported its fiscal Q1 2025 results in late October. For the quarter, revenue fell 11% year over year to $1.3 billion, reflecting the divestiture of its AMC/Mainframe business to Rocket Software that was completed on May 1, 2024. ARR was $1.1 billion, down 8% year over year. Cloud revenues were $457 million, up 1.3% year over year.
Quarterly enterprise cloud bookings were $133 million, up 10.3%. Operating cash flows and free cash flows were -$78 million and -$117 million due to the expected one-time tax payment for the AMC divestiture. Adjusted EBITDA, a cash flow proxy, fell 10% to $444 million with a margin of 35%. Diluted earnings-per-share was $0.32, up 6.7% year over year.
Open Text is a low capex business, averaging capex of about 11% of operating cash flow from fiscal years 2020 to 2024. It has a track record of successful M&A and a focus on cash flow, including free cash flow (FCF) generation, which has benefited its long-term shareholders. It has increased its dividend every year since initiating it in 2013.
The company has the following targets for fiscal 2025: revenue of about $5.35 billion in constant currency terms, adjusted margin of about 32.5%, as it increases investments in research and development and sales and marketing, free cash flow of $575 million, and to use +90% of FCF for dividends and buybacks.
2. CSG Systems International (CSGS)
CSG Systems International, Inc. CSGS is a software as a service (SaaS) platform company. The company provides revenue management and digital monetization, customer experience, and payment solutions across a variety of industries. These software products include a variety of formats, including business-to-business, business-to-consumer and business-to-business-to-consumer.
A majority of CSGS’ revenue as of Q3 2024 (52%) was derived from the cable/pay-TV industry. Another 18% consisted of telecom industry customers. The remaining portion of CSGS’ revenue is spread across other industries. The company’s other verticals category which includes retail, healthcare and financial services, has more than quadrupled in recent years, from just 7% to 30%.
On November 6, CSGS released its financial results for the third quarter ended September 30. The company’s revenue increased by 2.9% year over year to $295.1 million in the quarter. Continued growth in SaaS and related solutions revenue made up for lower software and services revenue during the quarter.
The company’s non-GAAP EPS climbed 15.2% over the year-ago period to $1.06 for the quarter. This matched the analyst consensus in the quarter. CSGS’ bottom-line growth was powered by a 140 basis-point improvement in the non-GAAP adjusted operating income margin to 18.4% during the quarter. Combined with significant share repurchases, this is how non-GAAP EPS growth outpaced revenue growth for the quarter.
CSGS’ focus on diversifying its revenue stream into higher growth verticals is still paying off. Revenue diversification has led the company’s average organic revenue growth rate to accelerate from an average of 1.8% from 2016 through 2020 to 5.1% from 2021 through 2023. Moving forward, CSGS continues to target 2% to 6% annual organic revenue growth. Greater automation and improved tooling lead management to maintain that its adjusted operating income margin can reach between 18% and 20% in the years ahead.
CSGS’ competitive advantage lies in its solutions. These solutions help companies to harness customer data more cost effectively. That allows these companies to launch new services and bill and collect revenue more efficiently. This leads to high retention rates for CSGS.
CSGS’ dividend also looks to be sustainable. The payout is still expected to be in the high 20% range for 2024. This is about where it has been for the past decade. That is arguably a sufficient cushion for the dividend to be grown at a high rate moving forward.
3. Cognizant Technology Solutions (CTSH)
Cognizant Technology Solutions CTSH is a 30-year-old company that provides information technology, consulting and business process outsourcing services in North America, Europe and other regions. More than 200,000 of its employees are highly skilled but have low salaries and are based in India. This keeps operational costs at a minimum. The company operates in four segments: financial services, healthcare, products and resources and communications, media and technology.
In late October, Cognizant reported financial results for the third quarter of fiscal 2024. The currency-neutral revenue grew 3% over the prior year’s quarter. Adjusted earnings-per-share grew 8%, from $1.16 to $1.25, exceeding the analysts’ consensus by $0.10, thanks to higher sales, a wider operating margin and share repurchases. Bookings remained flat at $26.2 billion (about 1.4 times annual sales). Business momentum improved compared to previous quarters.
Management essentially reaffirmed its guidance for 2024. It still expects essentially flat revenue and operating margin and narrowed its guidance for adjusted earnings-per-share from $4.62 to $4.70 to $4.63 to $4.67. Accordingly, we have left our forecast of $4.66 intact.
Cognizant has an exceptional growth record. It grew its earnings at a double-digit rate for more than 10 consecutive years, until 2018. Such a consistent record is a testament to the strength of its business model and the quality of its (previous) management. We expect 7% annual earnings-per-share growth over the next five years, slightly above the nine-year average annual growth rate of 6.4%.
Cognizant is poised to continue to grow via an increasing number of customers, modest margin expansion and tuck-in acquisitions. The company has made a long series of tuck-in acquisitions, such as the acquisition of Belcan, an engineering R&D services provider, for $1.3 billion. The acquisition is expected to add scale and help Cognizant establish a leadership position in technological services in the aerospace and defense industry.
CTSH has increased its dividend for five consecutive years and the stock currently yields 1.5%.
At the time of publication, Ciura had no positions in any securities mentioned.