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.

Cisco Systems, Inc. (NASDAQ:CSCO)

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 Chart

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 Chart

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?