Networking hardware giant Cisco Systems (CSCO -0.39%) gives back plenty to its shareholders. One way it shares the considerable amount of cash it generates is through a $0.33-per-share quarterly dividend. That's $1.32 per share that goes straight into Cisco stockholders' brokerage accounts. Or, if you use dividend reinvestment programs, or DRIPs, it means more Cisco shares deposited into your account.

If you're an income-oriented investor and have Cisco in your portfolio, or if you're thinking about buying some, you might be wondering two things: How safe is the current dividend? And should I expect that dividend to grow regularly?

Let's find out. 

A rack of servers with Ethernet cables coming out of the backs of each server.

Image source: Getty Images.

The dividend is safe

At first glance, it might appear that Cisco's dividend is dramatically outpacing its ability to pay it. While the company's annual dividend is $1.32 per share, its trailing-12-month earnings per share (EPS) figure is just $0.26. 

Don't panic, though. Whenever you see a well-established company that's historically been very profitable and has consistently paid a generous dividend with unusually low earnings per share, see if any one-off items have artificially depressed the EPS number to make the company look less profitable than it is.

In Cisco's case, the company says in its annual report that in fiscal 2018, diluted EPS and net income each fell by 99%, because of "the $10.4 billion provisional tax expense related to the Tax Act," consisting of "$8.1 billion U.S. transition tax, $1.2 billion of foreign withholding tax, and $1.1 billion of net deferred tax assets remeasurements."

Put simply, Cisco is doing a lot better than what its trailing-12-month EPS would indicate.

In fact, if we look at Cisco's free cash flow per share over the past 12 months, that figure works out to just over $2.80 -- more than enough to pay the current annual dividend twice over with a little left over. Furthermore, the trend in Cisco's free cash flow per share has been quite favorable:

CSCO Free Cash Flow Per Share (TTM) Chart

CSCO Free Cash Flow Per Share (TTM) data by YCharts.

Moreover, analysts expect the company's non-GAAP EPS, which excludes such one-off items, to rise from $2.60 per share in fiscal 2018 to $3.04 per share in fiscal 2019, followed by another rise to $3.31 per share in fiscal 2020. Sure, sometimes the analysts are off, but Cisco's business is mature and easier to predict than, say, a hot growth stock. So investors shouldn't worry that the dividend will go anywhere but up. 

The dividend has room to grow

Not only is Cisco's current dividend quite safe, but there's also plenty of room for it to get bigger. Ideally, companies should increase their dividends as their profits grow, allowing shareholders to participate in the company's success. Since Cisco's EPS is expected to grow in the coming years, it's probably a safe bet that the company's board of directors will continue to authorize dividend increases that are at least commensurate with that growth.

Also notable is that Cisco's dividend as a percentage of its non-GAAP EPS, or the payout ratio, isn't terribly high -- $1.32 is about 51% of the $2.60 in non-GAAP EPS that the company generated in fiscal 2018, and a bit more than 43% of its expected fiscal 2019 non-GAAP EPS. That means Cisco has plenty of room to boost its dividend while allowing itself a significant margin of safety. 

The good news for Cisco shareholders is that the company has been very good about giving its shareholders annual dividend increases: 

CSCO Dividend Chart

CSCO Dividend data by YCharts

The company has paid out the same $0.33 per share for three quarters in a row thus far, so after another quarter of a $0.33 payout, shareholders should expect another raise. The only open question in my book is how big that dividend increase will be.