Tech conglomerate Cisco Systems (NASDAQ:CSCO) is one stock whose share price hasn’t been hit nearly as hard as some of its peers. Cisco stock was able to deliver 13% to its shareholders in 2018 and so far this year the stock is up 3%. That’s pretty impressive given the context.

The tech sector has been a shaky one over the past few months as jittery investors and a massive sell off in December hurt share prices for several big names. However, while some of the flashier names in technology have taken a beating, safe, reliable companies that were once overlooked have come back into focus.

Cisco’s solid balance sheet, reliable dividend and proximity to some of the most promising tech trends make it a great pick for risk-averse investors. 

Old Faithful

Cisco stock offers investors a 3% dividend yield, which is unlikely to go anywhere but up because of the firm’s impressive cash coiffers. The new tax code allowed Cisco to bring back around $67 billion from overseas and management has been generous in using those dollars to reward shareholders. 

The firm has also been on a buying spree trying to beef up its wireless, cybersecurity and software arms and those purchases are likely to pay off in the coming years.

Although Cisco’s business has been largely dependent on network traffic switches, the company has been working to shift its strategy to focus on software and create a recurring revenue model and so far that switch appears to be paying off.

The firm was initially hurt by the move, but its software subscription revenue has started to move in the right direction after just a few years. 

Tailwinds

While Cisco’s strong balance sheet and reliable dividend payments offer investors stability in a very uncertain sector, the company also looks to have a few growth catalysts on the horizon as well.

Cisco’s Catalyst 9000 switches are likely to enjoy a tailwind over the next few years as data centers up their processing speeds and wireless companies release 5G products. The demand for faster data speeds is rising rapidly and Cisco’s products are smack dab in the middle of that rising tide.

Plus, Cisco is also exposed to some secular growth opportunities like edge computing, which takes some of the stress off data centers by performing computing jobs close to the end user rather than in the cloud.

Deutsche Bank analyst Vijay Bhagavath said he sees CSCO transforming from a product cycle stock to a secular growth stock this year, setting a price target of $60. That’s nearly 30% upside from where Cisco stock is trading today.

Risks

Of course, no stock comes without risk and Cisco is no exception. Although the company looks poised to deliver growth this year, there are some scenarios in which that may not materialize.

Nomura Instinet analyst Jeffrey Kvaal said investors should be cautious about the company’s growth story as weakness in IT spending strength this year could hit the firm hard. 

There’s also some concern that companies like Amazon.com (NASDAQ:AMZN) could start to sell white box switches that run on off-the-shelf chips and undercut Cisco significantly on price. That kind of competition would be risky for CSCO because it might sway price-conscious customers away from Cisco-branded hardware which would hit the firm’s revenue and margins hard.

The Bottom Line on Cisco Stock

Things look bright for Cisco stock and the company’s reliable dividend payments are icing on the cake. Right now CSCO is benefitting from several tech trends that put it’s hardware and software in high demand.

Cisco’s successful transition to a recurring revenue model means CSCO is on-track to deliver solid gains as its business ramps up. 

The firm has made several smart acquisitions that should help enhance its network offerings and create more valuable service and hardware bundles for customers. While there’s some risk that economic uncertainty could put a damper on spending, CSCO’s iron-clad balance sheet means the firm can likely withstand the storm. 

Competition from unbranded hardware is certainly a risk, but as CSCO continues to improve its bundles and add value for customers, it is unlikely to lose out to cheaper alternatives.

As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.