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Cisco shells out first dividend
Calming screaming shareholders with shiny pennies
Cisco Systems has finally grown up and is starting to pay a quarterly dividend to shareholders.
The networking giant has been a bigtime IT player for the past decade and a half, since the Internet buildout, of course, but its expansion into new enterprise products such as servers and consumer products like Flip digital cameras has come at a time when the global economy has smacked Cisco around perhaps a bit harder than its networking peers and its partners and competitors in the IT racket. Hence, the payola to keep shareholders from showing up at the Cisco annual meeting with pitchforks and torches.
"As the role of the network expands across the IT sector, Cisco's leadership position in the markets we serve is strong, and the time is right for Cisco to pay our first-ever cash dividend," said Frank Calderoni, Cisco's chief financial officer, in a statement this morning. "This dividend complements our leading position, and is an important part of our commitment to bring value to shareholders."
You won't hear anyone from Cisco copping to the payola factor regarding the dividend, or that the very presence of the dividend is meant to help Cisco's share price, which drives the compensation of the top brass at the company.
But, lo and behold, as Cisco announced its six cent per share dividend this morning as Wall Street opened for business, the company's stock was up 2.6 per cent to $17.44 per share as El Reg went to press. That's well off the $27.74 per share that Cisco was trading at in April 2010. Cisco's stock price has been a sawtooth wiggling down, more or less at a 45 degree angle in the wrong direction, for a bunch of complicated reasons.
Cisco is not actually trying to get customers to buy in to its strategy of moving out of its core networking into so many adjacent markets. But the dividend is meant to shore up the stock price and investor patience as the company works through major product upgrades across most of its key switching and routing product lines.
As Cisco put it when discussing its fiscal Q2 results back in early February, such transitions normally occur over a two year-span and are staggered, but Cisco is doing them all at the same time and before the economic recovery is complete.
"Our timing on market transitions appears to be pretty solid," John Chambers, Cisco's chief executive officer, said to Wall Street back in February. "I think we will look back on this period of time and wish that we could avoid it. But in the end it will make us stronger."
The quarter was not that bad, with sales up six per cent to $10.4bn, but net income dropped by 17.9 per cent to $1.52bn. And Cisco said it only expected 4 to 6 per cent revenue growth in fiscal Q4, ending in April, and maybe 8 to 11 per cent in fiscal Q4, ending in July. This is why Cisco's stock has been falling. Even still, Cisco has 5.88 billion shares outstanding and a market capitalization of $95bn.
Sure, as the Great Recession started in late 2007, Cisco was worth twice that. But during the dot-com boom, the stock was trading at a completely ridiculous $80 a pop.
All told, at six cents per share, Cisco is forking over $353m to the pitchfork-wielding shareholders in its first-ever quarterly dividend. At this rate, we're talking about $1.41bn a year; which while being nothing to be sniffed at, doesn't even scratch the $40.2bn in cash Cisco has squirreled away in the bank.
Still, the dividend does put a bit of a dent in the average of $5.76bn in cash Cisco threw off in each of the previous four quarters. ®