Dividend Stocks to Buy: Cisco Systems (CSCO)
Investing Type: Moderate
Dividend Yield: 3.7%
Cisco Systems, Inc. (NASDAQ:CSCO) just got a whole lot trickier. Shares were up 13% in 2017 and 27% over the past 12 months until Thursday, May 18, when it dropped nearly 8% over a disappointing fourth-quarter outlook that should see Cisco’s fiscal Q4 revenues to decline 4% to 6%.
Growth wasn’t that great to begin with; analysts expected sales to fall 1.8% this year, to go along with sub-1% EPS growth. So this year’s run was going to be difficult to sustain anyway.
However, the pullback in this old tech giant has the stock in a much more palatable position, and it’s knocked the yield closer to the 4% mark.
Cisco is working on a turnaround, and turnarounds simply take time. Currently, its legacy switch and network businesses carry the load, but CEO Chuck Robbins is trying to position CSCO for future growth.
Specifically, he’s looking to cybersecurity, the cloud and artificial intelligence. Recent acquisitions of Viptela for $610 million and MindMeld for $125 million should help in this regard. However, Cisco’s $72 billion cash pile ensures that if it wants to, a big purchase could be looming.
Valuation is low at just 13.5 times forward earnings, and the dividend is handsome for tech. However, growth at the moment is anemic — you’re betting on Cisco’s recovery plans taking hold, but if they do, CSCO has a lot of upside potential.