Cisco’s Reinvention

CiscoSystesm

Remember when California-based networking giant Cisco Systems was buying up companies in Greater Lowell and beyond? It was the networking boom of the late ’90s and early aughts, and Cisco was the biggest player, snapping up startups in its effort to build the biggest and baddest infrastructure for the sake of internet commerce. In 1999 alone, Cisco, then run by former Wang Labs executive John Chambers, bought 16(!) companies, including the $2 billion purchase of Lowell-based GeoTel. A year later, in what has to be considered a poster-boy moment of the insanity that was stock currency at the time, Cisco agreed to shell out $5.7 billion in stock (not a misprint) for Acton-based ArrowPoint Communications. Indeed, if Cisco didn’t create the technology itself, it would just buy whoever did.

Eventually, Cisco took all those Greater Lowell companies it acquired and planted them into one big campus off I-495 in Boxboro. It’s still there, and the company still houses more than 1,000 employees there (I think).

Well, the networking boom went bust, and while Cisco remained a big player in internet infrastructure technologies, sexier names (Apple, Google, et. al.) took over media attention in Tech Land.

But would you believe…. Cisco may now be considered a prudent choice for dividend investors? It’s true. Cisco, which didn’t pay a dividend at all until six years ago, has quietly ramped up its quarterly payout to the point at which it’s… well, rather competitive.

Earlier this year, the company announced that it was hiking its quarterly dividend from 26 cents per share to 29 cents. That comes to $1.16 annually, which is yield of 3.65 percent, based on Monday’s closing price of $31.76.

Hey, that’s not bad at all.

As you might guess, Cisco is not a big grower anymore. Its expected revenues for the year ending July 31 are somewhere around $47.9 billion, which would actually be a touch lower from the previous two years, both of which were above $49 billion. But thanks to consistent cost-cutting (hence my lack of certainty over Boxboro headcount), Cisco is expected to have a net profit this year of $2.38 per share, according to the average of 30 analysts covered by Yahoo Finance. Thus, Monday’s closing price comes to just 13.3 times earnings.   

Continuing the dividend shouldn’t be an issue, given that earnings remain about double the payout on a per-share basis.  

No, Cisco’s stock isn’t doubling in two years anymore (and then crashing back to Earth at some indeterminate time afterward). But it’s not sitting still either. In addition to continuing to command a large share of the networking space, the company has added other newer technologies, such as cloud services and cybersecurity, to its offerings.

Indeed, this one-time hare may have become a something of a tortoise. But it just might win the race.

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