Why Cisco Surged

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of networking giant Cisco Systems (Nasdaq: CSCO  ) had one of their best non-bubble days in years, gaining over 10% towards the end of the day. The company nearly doubled its dividend payout, which is now $0.14 per share quarterly  instead of $.08. That’s the third-largest dividend increase amongst all S&P 500 companies in 2012 and, even post-surge, it would represent an annualized yield of 2.9%

So what: Cisco’s revenue and adjusted earnings both came in ahead of analyst expectations, which provided a nice bonus to patient shareholders. However, both beats were fairly narrow in nature. CEO John Chambers had effectively tamped down expectations in his last quarterly update, warning that Europe (what else?) would pose challenges to global tech spending growth. However, the market’s reaction was clearly driven primarily by the dividend hike, with a nice helping of cautious optimism propelling the stock forward.

Now what: Cisco isn’t going anywhere any time soon. Its operations spin off cash with the best of them, and it’s long past the time when investors should be looking to "old tech" for monstrous growth rates and greedy capital spending. The company reported nearly $50 billion in cash and short-term investments this quarter, so there’s more than enough of a war chest to support this dividend hike. Alongside Intel (Nasdaq: INTC  ) , Cisco is now one of the best large-cap tech hardware stocks on the market for yield-seekers. It should continue to slowly and steadily beat index returns, as it assumes a deserved place in more defensive portfolios.

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Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more news and insights.

The Motley Fool owns shares of Cisco Systems and Intel. Motley Fool newsletter services have recommended buying shares of Intel. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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