Assuming that the $0.06 payout per share stays stable over the first year, we're looking at a dividend yield of about 1.4% at today's share price. With about 5.5 billion shares outstanding, this amounts to an annual cost of about $1.3 billion or just under 15% of Cisco's free cash flow in 2010.
Considering that the company already spent some $9 billion over the last 12 months to buy back its own shares, Cisco seems quite committed to returning value to shareholders. And before you start complaining about the company's stock-based compensation programs eviscerating the value of those buybacks, you should also know that Cisco issued $3 billion in new shares over the same period. Most of the buybacks really do achieve something more than just staying afloat.
Translate that $6 billion net buyback activity into straight dividends and you'd get something like a $1.09 annual payout per share or a 6% yield. That's quite comparable to established dividend kings such as AT&T
Don't expect Cisco to do that reshuffling anytime soon, though -- and maybe never. Fellow techies Intel
So Cisco joins the ranks of grown-up tech titans and starts out with an already-popular financial model. The yield isn't big enough to make Cisco an income-generating powerhouse today, though that might change with steady raises over the years, or a few more sharp blows to the underlying stock price.
Cisco would have by far the thinnest payout on our Income Investor scorecard, but the path to a thousand payouts begins with a single penny, and Cisco has started its journey.
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