August 16, 2012
It's certainly possible that Cisco CEO John Chambers was sandbagging a bit during his extremely cautious commentary back in May. I'll give him the benefit of the doubt; the company has lost a step or two on the execution front, and it's becoming increasingly unclear what combination of economic and competitive issues are affecting its performance these days. Regardless, the company was able to beat tempered earnings expectations handily yesterday, and while Chambers' tone was a bit more optimistic, he also made it clear that business in Europe is "going to get tougher before it gets better." So with business trends still a bit unclear, what's drove the big boost in shares today?
If you boost it, they will come
When your appeal to the growth-hungry tech crowd is waning, what's a CEO to do? Boost the dividend! That's just what John Chambers did yesterday, increasing Cisco's payout by 75% and bringing the company's yield near 3%, squarely between other big tech names like Intel at 3.4% and Microsoft at 2.6%. The news, when taking in combination with better than feared earnings, likely drove a few income investors to the name that weren't considering it before.
In the following video, analysts Brenton Flynn and Austin Smith discuss Cisco and how a change in dividend policy, and tax policy in the future, could affect this burgeoning income stock.
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