Monday, January 13, 2014 9:14:18 AM
Jan. 13, 2014 9:01 AM ET | About: CSCO
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
It is safe to say that Cisco Systems (CSCO) disappointed investors in 2013, with a share price appreciation of about 12%. Even if dividends are included the total returns still lagged the market by quite a bit. But how does 2014 look for the stock? Are there any positives at all? This article presents a few reasons why Cisco Systems might warrant investors' attention. Let us get into the details.
Barron's upgrade: This announcement is the one that got this whole article going. Barron's 2013 picks outperformed an already strong market and its 2014 picks seem solid as well. While one swallow does not make a summer, there is no doubt that a positive coverage by Barron's will have a positive impact on the stock especially when it says the stock has an upside of 20%. Barron's recent theme of picking undervalued dividend paying stocks seems to hold true for Cisco as well.
Potential Dividend Increase: Cisco has paid the same dividend of 17 cents per share for the past four quarters. That means there is a potential dividend increase announcement on its way before April 2014. Cisco began paying dividends in 2011 and the dividend per share has gone up from 6 cents/quarter to 17 cents/quarter. With a trailing payout ratio of 36%, there is plenty of dividend growth left here. The table below shows how this compares with two of Cisco System's old peers Intel Corporation (INTC) and Microsoft Corporation (MSFT).
Even if the company increases the annual dividend from 68 cents per share to $1.00 per share (unlikely), the payout will still be a comfortable 54%.
(Note that Cisco Systems started 2012 with a dividend of 6 cents per share and ended the year with 14 cents per share. Click to enlarge)(click link below for charts/tables)
(Source: Chart compiled with data from Finance.Yahoo.Com)
Valuation: Undervalued and Cisco are not two words that have gone together for long, especially if one remembers the dot com bust. But that is the scenario today, as Cisco seems to be undervalued when compared with old mates Intel and Microsoft. There are some who argue that Intel and Microsoft are undervalued, which makes the case even stronger for Cisco.
(click to enlarge)
(Source: Finance.Yahoo.Com)
Cash: Cash and short term equivalents represent 40% of the company's market cap, at $48 billion. This is significant for two reasons:
With an outstanding shares count of 5.34 billion and annual dividend per share of 68 cents per share, Cisco's current annual dividend commitment of $3.63 billion looks paltry.
Investors are essentially paying a much lower price for the company's forward business potential as cash on hand per share comes to around $9.
(Cisco's enormous cash on hand: click to enlarge)
(Source: YCharts.Com)
Earnings: As significant as the cash strength, low payout ratio, low valuation are, without forward earnings it is very hard to get by. Cisco is no longer the bellwether it once was but is still expected to grow earnings at 8% per year for the next 5 years. Analyst estimates aren't bullet-proof but the fact that Cisco has beaten the estimates every single time over the past 4 quarters is encouraging. And beating estimates is nothing new for Cisco as covered here as well.
If the estimates hold true, the earnings per share will be around $2.70 in the next 5 years, not accounting for buybacks. While this might not look too appealing for investors pursuing growth, a (growing) 3% yield per year plus a relatively safe earnings growth of 8% per year, and cash strength make Cisco a good candidate for those seeking safety in technology stocks.
(click to enlarge)
(Source: Finance.Yahoo.Com)
Conclusion: With doubts emerging about Intel's dividend growth potential and Microsoft's musical chairs CEO selection process, the ball is perhaps in Cisco's court to win over investors. A big dividend increase before the next payment will certainly be a good start, especially if the yield inches close to 4% (through sell off and/or dividend increase).
If Cisco increases the quarterly dividend to 20 cents per share, a share price of $20 will give investors the magic 4% yield. And Barron's endorsement doesn't hurt at all. In our opinion, Cisco is still in the running to be considered the second best big tech dividend growth stock behind International Business Machines Corporation (IBM).
_________________________________
http://seekingalpha.com/article/1941581-cisco-systems-barrons-upgrade-and-other-reasons-to-consider-buying?source=email_rt_article_readmore_button
CSCO
Recent CSCO News
- NightDragon, Cisco, WWT Partner with NPower to Drive Talent Diversity in Cyber Industry • PR Newswire (US) • 05/08/2024 04:00:00 PM
- Cisco Unlocks AI-Powered Intelligence for Self-Hosted Observability • PR Newswire (US) • 05/08/2024 02:30:00 PM
- Cisco Schedules Conference Call for Q3 Fiscal Year 2024 Financial Results • PR Newswire (US) • 05/08/2024 09:00:00 AM
- Cisco is Delivering on Platform Strategy with Rapid Innovation Across Cisco Security Cloud • PR Newswire (US) • 05/06/2024 12:00:00 PM
- BHP Bids $38.8 Billion for Anglo American; Biden Unveils Historic Micron Technology Deal, and More News • IH Market News • 04/25/2024 11:48:40 AM
- Cisco and Morgan Solar unlock clean energy adoption in office spaces • GlobeNewswire Inc. • 04/22/2024 03:00:54 PM
- Li Auto Stock Drops 7.3% Amid Tesla Price Cuts, Salesforce Retreats from Informatica Deal, and Other Market Updates • IH Market News • 04/22/2024 12:09:21 PM
- Cisco Reimagines Security for Data Centers and Clouds in Era of AI • PR Newswire (Canada) • 04/18/2024 07:00:00 AM
- Cisco Reimagines Security for Data Centers and Clouds in Era of AI • PR Newswire (US) • 04/18/2024 07:00:00 AM
- Cisco Completes Acquisition of Isovalent to Define the Future of Multicloud Networking and Security • PR Newswire (US) • 04/12/2024 10:35:00 PM
- Cisco to Host Tech Talk on Splunk • PR Newswire (US) • 04/10/2024 08:30:00 PM
- FMP Alliance Forms to Advance Innovative Fault Managed Power Technology • PR Newswire (US) • 04/08/2024 01:15:00 PM
- Cisco and BoA to Host Tech Talk on Security from RSA 2024 • PR Newswire (US) • 04/04/2024 12:00:00 PM
- Leading Companies Launch Consortium to Address AI's Impact on the Technology Workforce • PR Newswire (US) • 04/04/2024 11:30:00 AM
- Analysts’ Recommendations for March 27th: FedEx, Visa, Uber, Adobe… • IH Market News • 03/27/2024 12:13:10 PM
- Cisco Study Reveals Very Few Organizations in Canada Prepared to Defend Against Today's Rapidly Evolving Threat Landscape • GlobeNewswire Inc. • 03/27/2024 10:00:00 AM
- Cisco Study Reveals Very Few Organizations Prepared to Defend Against Today's Rapidly Evolving Threat Landscape • PR Newswire (US) • 03/27/2024 07:17:00 AM
- Cisco Hybrid Work Study Reveals Companies' Need to Modernize Offices • PR Newswire (US) • 03/26/2024 03:00:00 PM
- Cisco and Ford Motor Company Rollout Webex App for Productivity on the Move • PR Newswire (US) • 03/26/2024 03:00:00 PM
- Cisco Furthers Customer Experience Momentum with New Offerings That Extend Customer Value • PR Newswire (US) • 03/26/2024 03:00:00 PM
- Cisco Announces New Multifunctional Collaboration Devices for Hybrid Work • PR Newswire (US) • 03/25/2024 03:00:00 PM
- Cisco Completes Acquisition of Splunk • PR Newswire (US) • 03/18/2024 12:40:00 PM
- Cisco Completes Acquisition of Splunk • PR Newswire (Canada) • 03/18/2024 12:30:00 PM
- Cisco Completes Acquisition of Splunk • PR Newswire (US) • 03/18/2024 12:30:00 PM
- Adobe Stock Drops Following Below-Estimate Projections, Cardlytics Surges with Unexpected Profit, and More News • IH Market News • 03/15/2024 11:30:55 AM
Avant Technologies Equipping AI-Managed Data Center with High Performance Computing Systems • AVAI • May 10, 2024 8:00 AM
VAYK Discloses Strategic Conversation on Potential Acquisition of $4 Million Home Service Business • VAYK • May 9, 2024 9:00 AM
Bantec's Howco Awarded $4.19 Million Dollar U.S. Department of Defense Contract • BANT • May 8, 2024 10:00 AM
Element79 Gold Corp Successfully Closes Maverick Springs Option Agreement • ELEM • May 8, 2024 9:05 AM
Kona Gold Beverages, Inc. Achieves April Revenues Exceeding $586,000 • KGKG • May 8, 2024 8:30 AM
Epazz plans to spin off Galaxy Batteries Inc. • EPAZ • May 8, 2024 7:05 AM