Cisco: Show Me the Money!

On the back of six consecutive weeks of gains, stocks fell at the open today, with the S&P 500 (SNPINDEX: ^GSPC  ) and the narrower, price-weighted Dow Jones Industrial Average (DJINDICES: ^DJI  ) down 0.1% and 0.23%, respectively, as of 10:05 a.m. EST.

The week ahead
With fourth-quarter earnings data now available for more than two-thirds of the S&P 500, the earnings season is slowing down. However, a number of Dow components and other bellwether companies are reporting this week. There are no major earnings or economic announcements today, but this is what the rest of the week looks like:

  • Tuesday: Coca-Cola
  • Wednesday: Cisco Systems
  • Thursday: General Motors, PepsiCo

Cisco's cash pile
Last week, high-profile hedge fund manager David Einhorn brought legal action against Apple as part of an effort to get the company to return more of the company's cash to shareholders. Technology companies have disproportionate cash-holdings relative to companies in other sectors, and Cisco Systems (NASDAQ: CSCO  ) is no exception. At the end of October, Cisco had $45 billion in cash and short-term investments against $16.3 billion in long-term debt, making for a net cash position of $28.7 billion -- equivalent to $5.40 per share (the stock closed at $21.16 on Friday).

Cisco does pay a dividend: The yield is currently 2.6%. Over the 12-month period ending in October 2012, it repurchased nearly $3.3 billion worth of its own shares for a repurchase yield of 2.9%. Add the two together and you get a yield of 5.5% -- not shabby, but we're a far cry from the share's forward earnings yield -- the inverse of the price-to-earnings ratio -- of 9.4%.

At their current (under)valuation, repurchasing shares increases the intrinsic per-share value for remaining shareholders. Technology companies operate in a rapidly shifting environment, and it is wise for Cisco to retain a significant amount of cash on hand. However, a one-time dividend or an increase in the share buyback program would not be out of order right now.

Once a highflying tech darling, Cisco is now on the radar of value-oriented dividend lovers. Get the lowdown on the routing juggernaut in The Motley Fool's premium report. Our report also has you covered with a full year of free analyst updates to keep you informed as its story changes, so click here now to read more.


Read/Post Comments (3) | Recommend This Article (2)

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  • Report this Comment On February 11, 2013, at 12:28 PM, HanSolo60 wrote:

    While I would love to see a dividend of $5.40 per share of Cisco stock, the reality is most of the money Cisco has in the bank is overseas. And therefore subject to a US tax if it comes back into the country. That would mean the amount distributed would be $2.43. This of course assumes Cisco would distribute all of their cash, which is highly unlikely and not a wise move on their part.

  • Report this Comment On February 12, 2013, at 10:20 AM, twesselman100 wrote:

    I may be misunderstanding, but I believe 2.6% added to 2.9% is 5.5%, not 4.5%.

  • Report this Comment On February 13, 2013, at 10:58 AM, TMFAleph1 wrote:

    You're correct -- I'll have it corrected.

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