Top Tip:  Higher-Growth Dividend Stocks


Company:  Cisco Systems

Symbol:  CSCO

Shareholder Services company:  Computershare


Blue Chip meter (1 to 4):

Company Description

Cisco Systems designs, manufactures and sells internet protocol based networking equipment, along with other products and services related to the communication and information technology industry.  They describe themselves as the worldwide leader in IT that helps companies "seize the opportunities of tomorrow by providing that amazing things that happen when you connect the previously unconnected".  CSCO is either the #1 or 2 supplier in most of the main IP-related categories.

Key Financial Metrics

Investment Analysis

  • CSCO is a great growth company and very profitable to boot.
  • Because of the perceived higher risk of technology, it trades at a discount to the market (forward-looking P/E of 10.2x?  Are you kidding me?  This is versus 14.8x for the S&P overall).
  • But make no mistake, CSCO is a blue chip company.  I only give it 3 blue chips, in the context of our NITK criteria, due to it only recently starting to pay dividends.  But look at the phenomenal dividend growth.  The total return of capital to shareholders is a respectable 47%. 
  • CSCO's growth engine has been a combination of building ($5.5 billion R&D budget in 2012; ranked #1 or 2 in most market segments), buying (over 160 acquisitions since inception in 1984) and partnering (nearly 70,000).  They also own over 14,000 patents issued.
  • Future growth - they target the huge percentage of the world that still is not connected (note:  CSCO's marketing docs indicate 99% of the world is still not connected.  This clearly is not true, unless there is some type of qualifier that I'm not aware of).  Their plans also calls for delivering the "Internet of Everything", which digitizes the world, connecting people, process, data and things.  So whether it's 99% untapped potential or less, the future growth prospect for CSCO is still robust.
  • CSCO will likely continue to increase dividends by an aggressive amount over the coming years, making this company an excellent long term Higher-Growth Dividend DRIP candidate.

Other Pertinent Facts

  • Quality of DRIP program[1]:  Fair (CSCO only gets a Fair ranking due to setup costs and ongoing investment fee, dividend reinvestment fee and sales fee.)
  • Am I an investor?  yes, DRIP investor since 2010
  • One word of caution - CSCO has a minimum $500 one-time purchase or $50 for ongoing investments.  With a $2.50 ongoing investment fee and a dividend reinvestment fee, the attractiveness of this DRIP is probably dependent on the amount of monthly investment you plan.  $2.50 on a $50 monthly investment is high, at 5%.

[1] Fair ranking out of ranking system of Poor, Fair, Good, Excellent.

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