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Crossing Wall Street
August 11, 2005

Will Cisco Pay a Dividend?
I’m going to make a prediction. No, not like my other lousy predictions. This time, I’m nearly serious. I predict that Cisco will start paying a cash dividend.

Los Angeles Times
September 14, 2010

Cisco Systems says it will start paying cash dividends
Computer networking titan Cisco Systems said Tuesday it expects to start paying a dividend for the first time. Investors liked the sound of that: Cisco’s shares were up 45 cents, or 2.1%, to $21.71 at about 11:30 a.m. PDT.

OK, I was a wee bit early. What do I look like…Nostra-freakin-damus? Here’s what I had to say:

Really, it makes perfect sense. The company generates gobs of cash, but they waste it on buying their own stock (just like everyone else who buys Cisco’s stock).
There are two reasons why Cisco buys so much stock: They issue tons of stock, and they give out tons of options to their employees. They bought nearly $20 billion of stock in the last two years and the stock hasn’t done a thing. Forget fighting the market: just give it to shareholders.
The market simply doesn’t trust Cisco to spend its own money wisely. Here’s a nice little factoid: If you adjust for stock-option expenses, Cisco’s 2004 earnings would have been 45 cents per share, not the 62 cents that the company reported. I think the rumor that Cisco was about to buy Nokia was started by the Street just to get Cisco thinking about how it invests its money. I knew there was no way that Cisco would buy Nokia. Too much of their own cash flow is flowing down the drain. They don’t seem to realize that that’s not a good thing.
John Chambers & Co. must seem baffled by the market’s displeasure with Cisco. After all, the company has reported decent profit growth for the last two years, but the stock hasn’t done much of anything. Just pay a dividend, and the market will forgive you.

The company currently has a cash war chest of $40 billion ($7.01 per share). Cisco said it’s looking to yield 1% to 2%. At the current price, that works out to a quarterly dividend of around five to ten cents per share.

Posted by Eddy Elfenbein on September 14th, 2010 at 4:46 pm

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