A Perfect TFSA Stock: A 6.7% Yield With Constant Paycheques

Smart investors know the Tax-Free Savings Account (TFSA) is built for one thing: letting your money grow without the taxman taking a cut. That makes dividend-growth stocks like Enghouse Systems (TSX:ENGH) an ideal fit.

Valued at a market cap of $978 million, Enghouse stock is down almost 80% from its all-time high. However, the ongoing drawdown allows you to benefit from an elevated yield in 2026.

Enghouse is positioned to deliver a reliable income that compounds inside a TFSA. Every payout in the TFSA lands tax-free, and when those payments grow year after year, the compounding effect accelerates.

For income-focused investors, that’s a powerful combination, especially when paired with a company that’s proven it can navigate tough markets while still rewarding shareholders.

Is Enghouse stock a good buy right now?

In fiscal 2025 (ended in October), Enghouse reported revenue of $498.9 million, down from $502.5 million in the year-ago period.

• Recurring revenue, which includes SaaS (software-as-a-service) subscriptions and maintenance contracts, accounted for over 69% of total sales for both the quarter and the full year.
• A higher recurring revenue base allows companies to generate predictable cash flows across market cycles and support dividend hikes.
• Enghouse returned $61.8 million to shareholders through dividends in fiscal 2025, a 16% increase over the prior year.
• The Board approved another quarterly dividend of $0.30 per share, payable later this month. Given an annualized dividend payout of $1.20 per share, the TSX tech stock offers shareholders a yield of 6.7%.

CEO Stephen Sadler made it clear during the earnings call that the company plans to keep rewarding shareholders, though he hinted at a slight shift in strategy. “My guess would be … to still increase the dividend, but very slightly and spend more on buying back our own stock,” Sadler said.

The company also repurchased $14.7 million worth of shares in fiscal 2025, and Sadler suggested it could ramp up going forward.

Two business segments, one consistent strategy

Enghouse operates through two main divisions: the Interactive Management Group (IMG) and the Asset Management Group (AMG).

IMG provides contact centre software, video collaboration tools, and AI-driven communications solutions. Revenue for the segment was $285.8 million for the year, down from the prior year due to expected churn and the company’s ongoing shift toward SaaS-based licensing. Fourth-quarter revenue was $68.8 million, slightly below the $74.7 million posted in Q4 2024.

AMG, which includes the company’s transportation business, was the standout performer. Fourth-quarter revenue hit $55.7 million, up 9.3% from $51 million in the year-ago period. For the full year, AMG revenue grew to $213.1 million, a jump of more than 10% year-over-year.

Acquisitions such as Margento and Trafi expanded the division’s offerings, adding scalable mobility-as-a-service platforms and advanced transit fare-collection systems.

Cost discipline drives profitability

Adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) for Q4 was $33.7 million, representing a 27% margin. For the full year, adjusted EBITDA stood at $127.6 million with a margin of 25.6%. Those numbers reflect the company’s aggressive cost-cutting efforts in the second half of the year.

CFO Rob Medved explained that Enghouse streamlined operations, aligned costs with current revenues, and reduced expenses in areas impacted by acquisition integration and market shifts.

The benefits showed up in Q4, and management expects those efficiency gains to carry into fiscal 2026.

Enghouse is focused on dividend growth

Enghouse isn’t sitting on its cash pile. Shortly after year-end, the company acquired Sixbell’s Telecommunications division, expanding its presence in Latin America. Sadler noted Enghouse is also hiring additional staff to accelerate its acquisition pipeline.

“We continue to see substantial acquisition opportunities, which will provide a return on our investment,” Sadler said. He added that the company is taking a “two-pronged approach” in fiscal 2026: pursuing strategic acquisitions and increasing share buybacks.

For TFSA investors, this matters. Acquisitions fuel long-term growth, while buybacks reduce the share count and boost the value of remaining shares – all while dividends keep rolling in, tax-free.

Analysts also forecast the annual dividend to increase from $1.16 per share in fiscal 2024 to $1.60 per share in fiscal 2028, raising the yield on cost by 30%.

The post A Perfect TFSA Stock: A 6.7% Yield With Constant Paycheques appeared first on The Motley Fool Canada.

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Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Enghouse Systems. The Motley Fool has a disclosure policy.