Cisco Systems Inc.
), the leading provider of IP-based networking and other products,
reported its fourth quarter results and announced its decision to
raise the quarterly dividend by 6 cents to 14 cents per share. The
increased dividend will be paid from fiscal year 2013.
The 75% increase in dividend is encouraging and should support
share prices in the sluggish market. Given its size and scale of
operations, Cisco generates steady cash flows, so investors are
welcoming the returns.
During the recently concluded fourth quarter, Cisco spent $1.89
billion on share repurchases and $425 million on dividends. The
cash and short-term investments balance was $48.7 billion at
quarter-end, having increased $304 million during the quarter. The
debt-to-capital ratio including long-term liabilities and
short-term debt was just 30.7%. We remain encouraged by Cisco's
strong cash position and its ability to service its long-term
We believe that continuous share buybacks and the hike in
dividend will inspire investor loyalty through higher returns from
Cisco reported decent fourth quarter results, with earnings per
share surpassing our expectations. The company's revenue outlook
for the first quarter is flat to down 1.8% on a sequential basis,
in line with expectations. We think that Cisco is a very strong
company with significant market share and customer clout that would
generate solid results as the economy continues to improve. In this
respect, it is encouraging to see that although Cisco is taking
steps to lower its cost structure, it is not ignoring growth
Dividend hikes are a good way of encouraging investor confidence
as they return shareholder value. In Cisco's case, we think that
the increase in dividend makes the shares more attractive relative
to its peers.
While competitors like
Hewlett Packard Company
) are gradually picking up market share in some segments, Cisco
remains by far the leader in the networking market,.
Currently, Cisco has a Zacks #2 Rank, which implies a Buy rating
in the near term.
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