Cisco Systems (CSCO) Stock Analysis
Cisco Systems Dividend
The Cisco dividend has been paid since 2011 and increased for 6 consecutive years. The company is included in the Arbor Dividend Growers /Producers List because of its outstanding potential to be a long term dividend grower.
Current Dividend: $1.16
Dividend Yield: 3.6%
Cash Dividend Payout Ratio: 42%
Market Capitalization: 160 B
Enterprise Value: 124 B
Industry: Communications Equipment
Cisco is a global leader ($49 Billion in revenue) in designing, manufacturing, selling, and providing solutions for for a broad line of information technology based products and services. “Cisco brings integrated solutions that span network, data center, cloud, security, collaboration, analytics, and internet of things (IoT) for faster business transformation with reduced risk.” (CSCO Annual Report)
The future of Cisco will be focused on software and subscriptions. The company is transforming itself through acquisitions that focus on growing segments such as security, collaboration, services, and the IoT.
Emphasis is moving from from individual products to platforms, the Cloud, the Internet of Things (IoT), and Software Defined Networking (SDN). Cisco foresees a world where 50 billion devices will be connected on the internet by 2020.
Their strategy is to lead customers “in their digital transition by providing them with highly secure, automated, and intelligent solutions that connect nearly everything that can be digitally connected”. (CSCO Annual Report)
Dividend Analyzer Checklist
(updated June 2017)
Dividend Safety Score (22/33 points)
Dividend Per Share (ttm): $1.07
Dividend Payout Ratio (ttm): 54%
Dividend Per Share (10 Year Growth): n/a
Cash From Operations (CFO) Per Share (ttm): $2.71
CFO Dividend Coverage (CFO / DPS): 2.5 (2/6 points)
Free Cash Flow (FCF) Per Share (ttm): $2.51
FCF Dividend Coverage (FCF / DPS): 2.3 (4/6 points)
Net Financial Debt: $-35504 M
Total Assets: $125950 M
Net Financial Debt / Total Assets: -28% (12/12 points)
Net Financial Debt to EBITDA (ttm): 204%
Total Liabilities to Assets Ratio (Qtr.): 48%
Piotroski Score (1-9) (TTM): (4/9 points)
Profitability & Growth Score (23/33 points)
Revenue (10 Year Growth) *CAGR > 4.14%: 5.6% (4/4 points)
EPS Basic Cont. Operations (10 Year Growth) CAGR > 4.14%: 8.9% (4/4 points)
Cash From Operations (10 Year Growth) CAGR > 4.14%: 5.6% (6/6 points)
Operating Earnings Yield (ttm): 7.7% (3/7 points)
Net Income (ttm): $9998 M
Gross Profit (ttm): $30653 M
Total Assets: $125950 M
Gross Profitability Ratio = GP / Total Assets: 24% (6/12 points)
Cash Return On Invested Capital (CROIC)(tttm): 13%
Return on Invested Capital (ROIC): 11%
Return on Invested Capital (ROIC) (5 Year Median): 12%
Return on Invested Capital (ROIC) (10 Year Median): 12%
Valuation Score (26/34 points)
Free Cash Flow Yield (ttm): 8.0% (8/9 points)
EV to EBIT (ttm): 9.2 (7/9 points)
EV to EBITDA (ttm): 7.8 (7/9 points)
PE10: 22.5 (4/7 points)
Price to Sales Ratio (ttm): 3.5
Price to Book Value (ttm): 2.7
Price to Earnings Ratio (P/E) (ttm): 17.1
TOTAL POINTS – (71/100) (50 is an average score)
*Compound Annual Growth Rate (CAGR)
**A Compound Annual Growth Rate of 4.14% = a 50% gain over 10 years.
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SWOT Analysis For Cisco Systems
Cisco Systems has the management and financial strength to successfully transform itself from a company emphasizing individual products to a solutions and services company with a much higher percentage of recurring revenue than in the past.
Cisco has a large established clientele that is producing a steady increase of revenue from high margin services. Customer loyalty provides them a built-in advantage to be the provider of new services.
The company is one of the top 20 Research & Development (R&D)
($30 billion the last five years) investors in the world. Their broad product line up, R&D, and continual pursuit of the “next big thing” keep Cisco at the forefront of constant change.
The communications sector is in a mode of continual and aggressive change requiring constant re-investment and innovation. Cisco’s older high margin products are under pricing pressure that is expected to lower margins on those products.
Cisco Systems has a history of making key acquisitions that fill gaps in its products or services. This has included buying many small companies that might have been viable competitors to parts of their business. The company has made it a policy to maintain a pristine balance sheet that allows for this kind of active investing; including 12 acquisitions in 2016.
CSCO has has stated approach to innovation: Build (organic growth), Buy (acquisitions), Partner, Invest (start-ups, venture funds), and Co-Develop (industry-changing ideas built on the network).
Cloud based solutions are causing the sales of Cisco’s older products to decline. It’s highly likely that gross margins will deteriorate over time. Technology changes quickly and competition is fierce.
(updated June 2017)
Cisco Systems (CSCO) is ranked #20 (out of 252) overall and #2 (out of 16) in the Technology sector by the Dividend Analyzer.
Type of Investor / Recommendation
Large Diversified Dividend Portfolios / Should Be Included
Looking For Exposure to Technology Sector / Should Be Considered
Deep Value Investors / Can Be Considered
Portfolio Position Disclosures:
DVB Foundation Portfolio: None
DVB Dividend Growth Portfolio: Long
DVB High Income Portfolio: None
Arbor Asset Allocation Model Portfolio (AAAMP): None
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