Cisco (NASDAQ:CSCO) had generated an outstanding performance last year, buoyed by its aggressive expansion strategy and a solid cash generating potential. Cisco’s share price surged 14% in the last six months, extending twelve months rally to 22%. In addition, the company has raised its quarterly dividend by 24% to $0.26 a share at the beginning of last year.
Moreover, the company also announced a massive buyback program of nearly $15 billion, which could slash its outstanding shares by 15%. Share buybacks are always very vital for companies and their shareholders, as a low number of outstanding shares allow the company to expand its earnings, dividends and share price. Therefore, CSCO’s earnings and dividends will get a boost after the completion of the $15B buyback program.
On the other hand, analysts expect a double-digit dividend increase from Cisco in its next dividend announcement. “We expect Cisco Systems to increase its quarterly dividend by 15% to $0.30 in its next announcement,” Markit says. “The company has grown the dividend by an average of 15% resulting in an average pay-out ratio of 37% in the last three years.”
The company is operating in a less capital-intensive industry, which is allowing it to generate significant cash for investors. In the latest quarter, its cash and cash equivalents were standing at around $71.0 billion, compared with $65.8 billion at the end of fiscal 2016. On the other hand, its operating cash flows cover its dividend payments and capital requirements.
In the first quarter of FY2017, the company generated $2.7 billion in operating cash flows, compared with capital requirements of $275 million and dividend payments of $1.3 billion. Therefore, a double-digit dividend increase is highly expected from Cisco in its next dividend announcement. In addition, its share price will also get a strong support amid its increasing cash returns for investors.
“We executed well in delivering profitable growth, and saw strong adoption of our subscription-based and software offerings as we transition our business to a more recurring revenue model,” said Kelly Kramer, CFO. “We will invest in key growth areas and continue to focus on delivering shareholder value.”
The author has no positions in the above mentioned companies.