Dow Jones Industrial Average (.DJI), Cisco Systems, Inc. (CSCO): How Dividends Change the Game

The wealth-building power of compound interest will never cease to amaze me. It’s a story of patience and attention to detail, where small, short-term differences add up to massive divergence over decades. And in the end, the biggest winners don’t always deliver the fattest share-price returns.

Today, I’m looking at the Dow Jones Industrial Average (INDEXDJX:.DJI)‘s newest dividend-payer. All 30 Dow members run dividend programs now, but that’s a fairly recent phenomenon. Cisco Systems, Inc. (NASDAQ:CSCO) completed the set when the computer-networking giant started making quarterly shareholder distributions in the spring of 2011.

A dividend history of less than two and a half years isn’t much to hang your hat on, historically speaking. But Cisco Systems, Inc. (NASDAQ:CSCO) has already shown some signs of nurturing a healthy dividend policy for the long term. Specifically, Cisco Systems, Inc. (NASDAQ:CSCO)’s payouts have grown like ragweeds since that first tentative payout.

CSCO Dividend data by YCharts.

Cisco’s dividends per share more than doubled in the first year and then doubled again a year later. That’s an impressive commitment to stronger shareholder returns, and dividend payments now rival Cisco’s generous share-buyback program in size. All things considered, the current 2.9% yield is comfortably above the Dow Jones Industrial Average (INDEXDJX:.DJI)’s 2.7% average yield. It’s not a huge lead, but any advantage is impressive when you’re comparing yourself to the market’s elite group of companies.

That’s a nice start, but Cisco Systems, Inc. (NASDAQ:CSCO)’s dividend story is not all wine and roses. The strong yield rests not only on generous payout policies, but also on a weak share price. In short, Cisco has been running in turnaround mode for the last several years, and you would have been better off owning a simple Dow-tracking fund throughout Cisco Systems, Inc. (NASDAQ:CSCO)’s dividend era.

CSCO data by YCharts.

So the big question for income investors is: Will Cisco Systems, Inc. (NASDAQ:CSCO) be able to pull itself up by the bootstraps and keep growing those quarterly checks?