Editor: Vlad Rothstein | Tactical Investor
Is Cisco A Buy or Value Trap For Dividend Investors
Despite slowing growth, Cisco manages to shine in one area — dividends. This marks a radical departure from the Cisco of the 1990s, which once saw dividends as a less productive use of its excess cash. However, attitudes softened over time, and the company not only introduced a dividend in 2011 but has increased it every year since then. Today, the company offers an annualized payout of $1.44 per share, which is good for a yield of 3.5% at current prices. That comes in well ahead of the S&P 500‘s average yield of around 2.1%.
Admittedly, this still means Cisco is at least 16 years away from Dividend Aristocrat status. However, investors have plenty of reason to consider this a “pre-aristocrat” as the company remains in a strong position to maintain its annual payout growth.
The company sports a payout ratio of just over 50%. This leaves the other half of the company’s net income for various investments, stock buybacks, or future payout hikes. Moreover, Cisco held $27.1 billion of cash and short-term investments as of late January. Although this year’s total payout will probably exceed $6 billion, the company should still be able to easily meet this obligation.
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