Despite its long history, Cisco Systems (NASDAQ:CSCO) may have only just begun. Cisco stock once flew so high that it briefly attained the largest market cap. After the end of the dot-com boom, CSCO languished for years.
However, CSCO stock has taken on a new identity as a dividend-paying stock focused more on software and security. As a result, it appears positioned to benefit from the growth of 5G wireless technology.
Between the dividend and the emergence of 5G, CSCO appears set to become one of the essential growth and income stocks.
Cisco: The Income Stock
I once had quite a history with Cisco stock. I bought shares in 1997, and I was thrilled when they had risen eightfold in just over two years thanks to the dot-com boom. Depressingly, I then watched most of my gains melt away over the next year and a half before I finally sold for a more modest profit.
Much like I have become a different investor, Cisco has become a different company. The old Cisco focused on hardware. Today, the emphasis has shifted to software and security. Moreover, the Cisco of old focused on investments, buying companies, and inspiring a higher stock price. Today’s Cisco trades 36% below its record high of 19 years ago and emphasizes its rising dividend.
As for the payout, the company will pay out $1.40 to shareholders this year. This places the current yield at almost 2.7%. Moreover, CSCO has hiked the payout every year since the stock began paying dividends in 2011. Those who have held since 2011 earn a double-digit percentage yield. It would surprise me if CSCO stock did not become attain dividend aristocrat status (meaning 25-plus years of dividend hikes) in 17 years.
Poised for More Growth
This does not mean I advocate writing off Cisco stock as a stodgy Dow 30 equity. CSCO will produce necessary products and generate dividends. That said, I do not think Cisco will become more like Dow peers Procter & Gamble (NYSE:PG) and 3M (NYSE:MMM) than growth stocks such as Square (NYSE:SQ) or Netflix (NASDAQ:NFLX).
However, I expect Cisco’s products to generate more investor enthusiasm, and with that, more growth to add to the income stream. Wall Street forecasts profit increases of 18.1% this year and 10.1% the next. Moreover, CSCO has attained something unimaginable with the old Cisco stock—a low price-to-earnings (PE) ratio. Today, CSCO stock maintains a forward multiple of about 15.4.
That appears cheap when considering the role Cisco will play in the 5G space. CSCO has created a “Cloud-to-Client” solution for 5G. This will affect the network at every level. It offers a seamless 5G solution end-to-end that will enhance security while optimizing speed and performance. This should drive profit increases as Cisco stock moves into the next decade—and the next quantum leap in wireless tech.
Concluding Thoughts on Cisco Stock
Expect 5G to turn Cisco into the quintessential growth and income stock. Put simply, this is not the dot-com boom CSCO. This one-time growth stock has morphed into a more conservative, dividend-oriented company. Payouts have increased every year since 2011. With these rising payouts, it could eventually become a dividend aristocrat. Moreover, with its move into 5G, double-digit profit increases have returned.
However, the real benefit may come as 5G represents the next great quantum leap in wireless technology. We already know 5G will probably equip every appliance, light fixture, and meter with wireless technology. However, the real power could come from what we do not imagine.
Few could have imagined all of the apps that would come about when Apple (NASDAQ:AAPL) introduced the iPhone in 2007. Investors should expect the same, surprising level of innovation as 5G becomes more prevalent.
I do not know what products will emerge. However, regardless of what creation comes about CSCO could serve as the backbone to that technology. Even beyond the financials, that function could become reason enough to buy Cisco stock.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.