Cisco Systems, Inc. Is a Cash Cow
Cisco Systems, Inc. (NASDAQ:CSCO) stock is looking more and more like a great dividend stock and the position is not expensively priced at all. Cisco may be part of the “old tech” world, but in this environment, CSCO stock has a lot going for it. Not only does the company have a good balance sheet, but it also has a dividend yield, which is right close to four percent, and very healthy bottom-line earnings.
Cisco Systems is essentially the Internet, as the company’s products like switches, which create local-area networks (LANs) and wide-area networks (WANs), facilitate enterprise and large-scale Internet traffic.
The company’s routing technologies move mobile, data, voice, and video applications. Its data centers manage cloud applications and information. And Cisco’s cybersecurity business is a growing area with software and hardware firewall solutions.
So, it’s one big package that just happens to pay a great dividend to stockholders.
In 2011, the company’s quarterly dividend was $0.06 a share; now, it’s $0.26 a share.
As well, Cisco has the cash and earnings flow for a significant boost to dividends going forward. During the second fiscal quarter, cash flow from operating activities was up 36% to $3.9 billion. Second-quarter fiscal 2016 diluted earnings per share were up 35% comparatively to $0.62.
Cisco’s stock chart is featured below:
Chart courtesy of www.StockCharts.com
In this market, where currency translation for multinationals is a well-known headwind, what institutional investors are willing to buy are earnings per share and dividend income growth. This has been a successful combination (for corporations and investors) since the beginning of 2013.
Naturally, share repurchases pay for a lot of dividends. In fiscal 2015, Cisco repurchased 155 million of its own common shares, spending about $4.2 billion.
While the company’s total annual sales growth is in the very low digits, the fastest-growing component of all its operating lines is in security (up 11% in total product sales growth over the fiscal second quarter of 2015).
Plus, management is constantly acquiring new businesses. Most of these acquisitions are related to cybersecurity, as well as data analytics and video processing.
Cisco Systems typically goes four quarters before affecting a new dividend increase. The company’s latest boost to $0.26 per share was declared February 10, 2016.
This is a solid dividend income story and the position is worthy of consideration on major price retrenchments for those looking for a blue-chip, IT income play. Microsoft Corporation (NASDAQ:MSFT) is another good example of an IT income play to consider for a slow-growth investing world.
The Bottom Line on Cisco Systems Stock
What you’re unlikely to get with CSCO stock is runaway capital gains on a short-term basis. However, this is still a growing enterprise and the company’s bottom-line expectations are healthy.
Cash flow is king in this market and because overall equity market investment risk is on the rise, lower valuation stocks like Cisco Systems are less vulnerable in a market that is easily predisposed to another big correction.