Cisco Systems, Inc. (NASDAQ:CSCO) has been nothing short of an impressive dividend growth stock since it began paying dividends in 2011.
The company’s quarterly dividend payment has increased from 6 cents per share in 2011 to 26 cents most recently, including management’s 24% boost to the dividend in February 2016.
With a low price-to-earnings multiple, a dividend yield near 4%, and very strong Dividend Safety (87) and Dividend Growth (80) scores, Cisco has caught the attention of many income investors.
Among the funds tracked by Insider Monkey, 60 reported long positions in Cisco as of the end of September, down from 67 funds a quarter earlier. However, the aggregate value of their positions went up to $4.31 billion from $4.24 billion, but represented just 3.10% of the company’s stock at the end of 2015. Among the top shareholders of Cisco are Donald Yacktman’s Yacktman Asset Management and Ken Fisher’s Fisher Asset Management, which reported ownership of 31.04 million shares and 15.49 million shares in their last 13F filings, respectively.
Let’s take a closer look at the investment case for Cisco as we consider the stock for our Top 20 Dividend Stocks and Conservative Retirees dividend portfolios.
Business Overview
Cisco was founded in 1984 and has grown to become one of the most important technology companies in the world. While the business sells a wide variety of products (77% of sales) and services (23%) to businesses of all sizes, its main offerings connect computing devices to networks or computer networks with each other.
The company’s website provides an overview of switches (39% of product sales) and routers (20%), which are Cisco’s largest segments.
Switches are used in buildings, campuses, offices, and data centers to connect devices such as workstations, servers, and phones together on a computer network. They help receive and forward data to the right device.
Routers pass along data packets between computer networks to connect wireline and mobile networks used for mobile, data, voice, and video applications. They essentially direct the internet’s traffic to the appropriate destination.
The rest of Cisco’s product revenue is spread between a number of faster-growing segments – Collaboration (11%), Data Center (9%), Wireless (7%), Service Provider Video (9%), and Security (5%). Most of Cisco’s products and services are sold through channel partners such as telecom providers and systems integrators.
The company’s service revenue consists of technical support, subscriptions, and software that are spread across its various segments.
By geography, approximately 60% of Cisco’s sales last fiscal year were in the Americas with another 25% in EMEA (Europe, the Middle East, and Africa) and 15% in Asia.
Business Analysis
Cisco dominates most of its core markets. According to IDC, Cisco’s share in the Ethernet switching market was 59.2% at the end of the third quarter of 2015. The company’s market share in routers is also in excess of 50%.
As seen below, no other vendor comes close to Cisco’s dominance in these markets.
Source: IDC
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