Since September 2001, Cisco Systems Inc. (NASDAQ: CSCO) has authorized a total of $72 billion in share buybacks. Now the company has said that it will add another $10 billion to its buyback program, even though the company still has about $4.5 billion remaining on the original $72 billion. Oh, and there’s still no hint that Cisco will offer a dividend.
Back in the day, it was not uncommon for technology companies to hold on to their cash in the event that an attractive acquisition came along or that some product was delayed interminably or that some other disaster might strike. But Cisco’s market cap is now about $109 billion and it has almost $40 billion in cash and investments. There’s pretty much no storm that the company couldn’t weather.
Even with the stock buybacks, Cisco’s shares have gained only +50% in value since 2001. Competitor Juniper Networks, Inc. (NASDAQ: JNPR), which also eschews a dividend, has seen its share price rise nearly +250% in the same time period, and its market cap is only around $18 billion. Neither company has split its stock since 2000, so that’s no issue.
As a way of returning capital to investors, share buybacks are far less attractive than dividends. And as for demonstrating effective management, buying back shares is the path of least resistance. It looks like something is happening when in fact nothing is happening.
If Cisco can’t find a better way to allocate its capital than by giving it back to shareholders, then how about a special, one-time dividend. The company has about 5.6 billion shares outstanding. Pay a $2 or more per share special dividend if there’s no way to invest the company’s cash that will enhance shareholder value for the future.
As of late October, corporations have indicated that they will buy back some $273 billion worth of their shares, about five times the amount reported at the same time last year.
If Cisco paid an annual dividend of $0.40/share, at a share price of $23.50, about halfway in its 52-week range of $19.34-$27.74, its yield would be 1.7%. Surely a company with annual operating cash flow of more than $10 billion could afford that.
Cisco shares are approaching a 52-week low, trading down about 0.5% at $19.52, just $0.18 from that new low.