Once upon a time, tech stocks were hot. They eventually crashed back to earth, only to rise again and lead this bull market.
The survivors of the dot-com era clearly did something right, and Cisco Systems, Inc. (NASDAQ:CSCO) is a great example.
While shares trade much lower than the March 2000 high of $82, the stock has come a long way from the October 2002 low of $8.12.
During that comeback, the company has made itself stronger, has become essential for making the internet work the way it does, and has become a powerful income stock in the process.
It’s probably hard to find an investor who hasn’t heard about Cisco — and yet, many people don’t know what, exactly, Cisco does.
I think there are a couple reasons for that gap. One is the highly technical nature of Cisco’s business. The other is the wide variety of products and services Cisco makes. But all of its products, all of its services, all of the changes Cisco went through over the years, they all have something in common: They all connect people.
And because the world is becoming even more interconnected, Cisco’s work is never finished. The company builds products that make various networks work faster, data centers and the cloud function seamlessly, it makes the Internet of Things (IoT) possible, and helps incorporate security in all these operations.
Cisco Now and Then
It all started at Stanford University, when husband and wife Len Bosack and Sandy Lerner, who cofounded the company in 1984, wanted to create something that would allow them to communicate faster from their offices located in different buildings. As a result, a new technology — the multi-protocol router — was born.
Cisco is still known for its routers (which represent about 15% of the business). It also makes switches (30% of the business) and provides services (24%), collaboration software (9%), on-demand infrastructure for data centers (7%), video products for service providers and wireless (5% each) as well as security services (4%).
When the current CEO, Chuck Robbins, was promoted to this role about two years ago, the market was surprised. After all, he was replacing industry legend John Chambers, who had been with the company since 1995.
But the past two years have been good by most measures. Net income continued to grow, hitting $10.7 billion last year, up from $7.9 billion in 2014, as did earnings per share, which rose to $2.11 from $1.49 two years earlier.
Cisco’s quarterly dividends have also been growing: The dividend currently sits at 29 cents per share, which is up from 19 cents per share in December 2014, and 21 cents per share in 2015.
That kind of growth is impressive, especially if you recall that, as recently as 2010, Cisco was paying nothing. And that its first dividend, paid in April of 2011, was only 6 cents per share.
Of course, for Cisco to transform from a once high-flying tech darling to a solid company paying ever-rising dividends, there were a few changes along the way.