Cisco (NASDAQ:CSCO) has cash sitting on its balance sheet that represents nearly 42% of its market cap! Yet, Cisco also keeps a fair amount of debt -- $16 billion -- and only $7 billion of its cash is held domestically.
That's important because it severely limits Cisco's ability to return capital to shareholders. The company has recently raised its dividend aggressively and is now targeting returning 50% of free cash flow to shareholders. However, that level could be a ceiling without tax reform in the United States.
As Eric Bleeker discusses in the following video, the United States currently has a repatriation tax that could mean profits brought home from overseas could be hit with taxes up to 35%. Yet the United States is the only G-7 country which maintains this kind of repatriation tax. With not just Cisco but other major technology peers hoarding hundreds of billions in cash overseas, Eric calculates that any tax law change in the United States could represent an immediate catalyst that could send Cisco shares up north of 10%. To see his full thoughts on the subject, watch the video.
Eric Bleeker, CFA, owns shares of Cisco Systems. The Motley Fool recommends Cisco Systems. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.