Last update on 2024-06-25

Cisco Systems (CSCO) - Dividend Analysis (Final Score: 6/8)

Comprehensive analysis of Cisco Systems (CSCO) dividend performance with a final score of 6/8, providing insights into yield, growth, coverage, and sustainability.

Short Analysis - Dividend Score: 6

We're running Cisco Systems (CSCO) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

The dividend analysis assesses Cisco's performance and stability using an 8-criteria system. Cisco has a strong dividend yield at 3.0681%, much higher than the industry average of 1.19%. However, its dividend growth rate is inconsistent, with fluctuating values over the past 20 years. The payout ratio mostly stays below 65%, excluding a notable spike in 2018. Cisco generally covers dividends well by both earnings and cash flow, but recent cash flow coverage has slightly declined. The dividends have been stable since 2011 and show an increasing trend but have not been paid over 25 years. Cisco maintains a steady stock repurchase program over the past 20 years, enhancing shareholder value. Thus, Cisco scores 6 out of 8 on the dividend criteria scale.

Insights for Value Investors Seeking Stable Income

While Cisco does not meet all long-term dividend criteria, its high yield and stable history since 2011 make it an attractive option for income-focused investors. However, potential investors should be cautious of the inconsistent dividend growth rate and slight recent decline in cash flow coverage. Overall, Cisco is a strong candidate worth considering, especially if you're looking for both dividends and share repurchases.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield, expressed as a percentage, indicates how much a company pays out in dividends each year relative to its stock price. It is important for investors who are looking for regular income as a sign of the returns they can expect in the form of dividends.

Cisco Systems (CSCO) boasts a dividend yield of 3.0681%, significantly higher than the industry average of 1.19%. Evaluating historical data, Cisco's dividend yield consistently rises and stabilizes above the industry average post-2011. This trend has outperformed peers predominantly in the late 2010s, better appealing to income-focused investors. While the dividend yield plateaued slightly around the 3% mark and showed some fluctuations, it now stands considerably enhanced compared to both historical lows and the broader market. Given that Cisco's yield sustains comfortably over the industry norm, this is indicative of a relatively strong and attractive dividend policy. Stock price stability and progressive dividend payments further reinforce its position as a robust dividend-payer, making it favorable for yield-seeking investors.

Average annual Growth Rate higher than 5% in the last 20 years?

Dividend growth rate indicates how much a company's dividend payments have increased over a certain period. This is crucial for assessing the sustainability of income for dividend-focused investors.

Upon examining Cisco Systems' dividend per share ratio over the last 20 years, it is observed that there is an inconsistent trend. The ratio shows sharp increases in 2012 (177.7778%) and 2013 (2%), but also significant decreases and fluctuations in subsequent years, with values as low as 2.649% in 2023. The average dividend ratio over the given period is 14.45%, which suggests overall growth. However, the substantial fluctuation raises concerns regarding its sustainability. Thus, while the average suggests a promising figure, the highly volatile year-over-year changes present a risk and may not guarantee stable dividend growth, a key consideration for long-term dividend-focused investors.

Average annual Payout Ratio lower than 65% in the last 20 years?

The payout ratio is the proportion of earnings a company pays to its shareholders in the form of dividends.

Observing Cisco Systems' payout ratio over the past 20 years, several important trends emerge. It starts at zero for many years until dividends were initiated in 2011, after which, the ratio steadily increases but remains regularly below 65% until 2018. The notably high outlier in 2018—5688.8889%—significantly skews the average payout ratio to 297.0065%, undermining the usual payout trends, yielding an unreliable average. Except for this outlier, the trends favor a generally prudent payout strategy within the recommended threshold of 65%. This is a positive sign for Cisco's dividend sustainability, integral for long-term investors focused on reliable income from their investments.

Dividends Well Covered by Earnings?

Explain the criterion for Cisco Systems (CSCO) and why it is important to consider

Dividends covered by earnings means observing whether the company's earnings per share (EPS) are sufficient to cover its dividend payouts. This is crucial as a sustainable dividend should ideally be covered by net profits, ensuring long-term viability.

Dividends Well Covered by Cash Flow?

Assessing whether Cisco Systems' (CSCO) dividends are covered by its free cash flow indicates if the company has sustainable and secure dividends.

Examining the provided historical data for Cisco Systems (CSCO), from 2003 to 2023, reveals insightful trends in the company's ability to cover its dividend payouts from free cash flow (FCF). Initially, Cisco did not pay dividends, up until 2011. From then on, the percentage of dividends covered by free cash flow has varied but generally increased, with some fluctuations. For instance, the coverage was as low as 0.07 in 2011, indicating only 7% of FCF was used for dividend payouts. This improved over the years to reach a peak in 2018 at roughly 49%. However, there was a slight reduction in 2019, and more significantly in 2023 down to approximately 33%. The consistent ability to cover dividends by FCF, especially when consistently above 30%, reflects favorably on Cisco's financial management and dividend sustainability. Nonetheless, the recent decline below its peak could be a point of concern, suggesting either increased dividend payouts or declining free cash flow. Investors should monitor whether this trend is part of an ongoing trajectory or a one-off adjustment when making long-term investment decisions.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends over the past 20 years are essential for income-seeking investors as they ensure a reliable income stream.

Over the past 20 years, Cisco Systems (CSCO) has demonstrated a stable and slightly increasing pattern in dividends per share. Starting from 2011, when the company initiated its dividend payments, there has been a consistent upward trend. The dividend per share has grown from $0.18 in 2011 to $1.55 in 2023. This growth reflects the company’s financial stability and commitment to delivering shareholder value. Importantly, there were no instances where the dividend dropped by more than 20%, which signifies robustness and consistency even during economic downturns or company-specific challenges. For income-seeking investors, this trend is undoubtedly positive as it provides confidence in the company’s ability to sustain and potentially grow its dividend payouts over time.

Dividends Paid for Over 25 Years?

The longevity of dividend payments indicates a company's financial stability and commitment to returning value to shareholders.

Cisco Systems has only paid consistent dividends since 2011, meaning it falls short of the 25-year mark, although it has steadily increased its dividend per share from $0.18 in 2011 to $1.55 in 2023. This trend is positive albeit not meeting the 25-year threshold; it reflects Cisco's growing profitability and shareholder-friendly policies in recent years.

Reliable Stock Repurchases Over the Past 20 Years?

Explain the importance of analyzing a company’s stock repurchase program over the span of 20 years.

Cisco Systems has demonstrated a consistent stock repurchase program over the past 20 years. In 2003, the number of shares stood at 7.223 billion, and this figure has steadily declined year over year, reaching 4.093 billion by 2023. The continual repurchasing activity is evident from years like 2004, 2005, and beyond till 2023, without significant interruptions. This downward trend in share count, with an average annual decrease of 2.7707%, is generally positive. By repurchasing shares, Cisco effectively returns capital to shareholders, which can subsequently drive up the company's earnings per share (EPS) by reducing the number of outstanding shares. This activity suggests prudent capital management, leading to enhanced shareholder value.