Enghouse Systems Ltd. (ENGH.CA) has had a rough few years and is well below the highs set during the peak of the pandemic in 2020. But as contrarian investors, we have taken a stake in this enterprise and are anticipating a recovery in the years ahead, says Philip MacKeller, editor of Contra the Heard.
While we await the turnaround, we are being rewarded with dividends. The yield sat around 6% in late 2025.
Enghouse is a vertically focused software solutions provider headquartered in Ontario. In the latest quarter, around 70% of sales came from its recurring software-as-a-service (SaaS) segment. Most of the remaining 30% was generated from one-off software licenses and providing professional services, while hardware contributed a minor 2.7% of the top line.
The company has two business divisions: the Interactive Management Group and the Asset Management Group. The former provides customers with services to facilitate remote work, improve client engagement, and manage internal communications. Meanwhile, the latter offers software solutions for infrastructure, transportation, and supply chain challenges, among others.
The corporate growth strategy is two-fold. First, it drives business through internal investment, deepening existing customer relations, and funding new software services via R&D. Second, it pursues acquisitions with a focus on small companies with recurring software revenue. Their M&A strategy nearly exclusively focuses on bolt-on acquisitions, which they can buy outright with cash and integrate quickly.
The business fundamentals are solid. Enghouse has grown its top line over multiple business cycles, the balance sheet is cash-rich with hardly any debt, and it has produced consistent operating and free cash flows in each of the past 10 years. Insider alignment is strong, with executives and directors owning over 20% of the shares outstanding.
Its valuation has faltered because revenues and net income have slipped in the past year, with macro challenges mounting, customers cutting spending, and problems emerging with the SaaS business model. ENGH is also considered “boring old tech” rather than hyperscaling AI. While the company has used AI to cut costs and drive efficiencies, it has not aggressively used AI to increase sales.
Risks and all, Enghouse Systems is well positioned, cheap, and pays a generous dividend. These features suggest it may reward owners with dividends and capital appreciation in the year ahead, which is why it is my top income pick for 2026.
Recommended Action: Buy ENGH.CA.
