CSCO Stock Now Yields 4%
Cisco Systems, Inc. (NASDAQ:CSCO) stock is inexpensively priced and due for a breakout. Not only is it a solid cyber security play in its own right, but CSCO stock is also a great dividend pick for income investors to add to their radars.
In this slow-growth world, dividend income really matters. It’s the difference between no return and beating the rate of inflation in what is likely to be another flat year for stocks.
“Old tech” is coming back into style these days, as institutional investors look for earnings predictability and yields.
Cisco Systems hasn’t done a lot on the stock market since the technology bubble of 2000 burst. However, Wall Street earnings estimates for this unappreciated blue chip have been ticking higher as of late. Combined with the company’s strong dividend payments this year, a 10% total rate of return on this position (earnings growth plus dividends) would not be unreasonable.
The stock chart for CSCO stock is featured below:
Chart courtesy of www.StockCharts.com
In its fiscal second quarter of 2016 (ended January 23, 2016), Cisco Systems produced flat comparable sales (actually up two percent comparatively due to a divestiture), which, in contrast to many multinationals dealing with negative currency translation, is actually decent for such a mature global enterprise.
Similar to many other brand-name technology stocks in this market, the story is about the business’ bottom line.
Cisco Systems saw its fiscal second-quarter earnings improve 31% to $3.1 billion. Diluted earnings per share improved 35% to $0.62.
Not only was the company’s bottom-line performance genuinely impressive in its most recent quarter, but management also boosted Cisco’s upcoming quarterly dividend by a whopping 24% to $0.26 per share. This is in addition to a $15.0-billion boost to the company’s authorized share repurchase program.
Fiscal third-quarter sales are expected to grow one to four percent comparatively. Non-GAAP earnings per share are currently forecast to be between $0.54 and $0.56 per share.
The Bottom Line on CSCO Stock
As mentioned above, I think CSCO stock is a great pick for income investors to consider in this market.
Sure, top-line growth is not going to be robust with such a mature enterprise. However, the company is making inroads with its software business (related to cyber security) and this business model produces the best kind of revenues—recurring.
The best part of Cisco Systems’ story is its dividend growth potential going forward and its strong cash flow to pay for it (2016 fiscal second-quarter cash flow from operating activities improved 39% comparatively).
This past quarter, the company bought back 48 million of its own common shares at an average price of $26.12 per share, which pays for a lot of dividends ($1.10 in the second quarter to be exact).
Inexpensively priced with a strong yield in this stock market makes for an attractive asset for investment-grade investors. Cisco Systems stock is worth a look in this market for new buyers. Prospects for rising dividend payments from CSCO stock going forward remain excellent.