Company holds to September 2010 pledge to dole out some of its $40 billion in cash
As promised, Cisco this week said it will pay a dividend to shareholders from that $40 billion cash reserve it has piled up, most of which is overseas. It’s the first time in company history that Cisco’s paid a dividend.
The quarterly dividend, valued at $0.06 per common share, will be paid on April 20. Cisco promised a 1% to 2% yield during its analyst day conference back in September, and this falls within that range based on its closing stock price on March 17, according to investment firm Ticonderoga Securities.
Future dividends will be subject to board approval, Cisco said.
Cisco said it’s the right time to offer shareholders a dividend based on the growing importance of IP and Ethernet networking in IT, and Cisco’s leadership position:
“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 executive vice president and CFO. “This dividend complements our leading position, and is an important part of our commitment to bring value to shareholders.”
But this post on CNBC indicates Cisco stock, down 35% over the past year, might be “dead in the water.” That’s what’s happening now to Microsoft and Intel — the stock price isn’t moving on these dividend paying tech stalwarts. CNBC posits the same scenario for Cisco since tech stocks are bought for growth, not for dividends.
Cisco exited its second fiscal quarter with $40.2 billion in cash but the U.S. cash balance is estimated at only $3.1 billion, according to Ticonderoga Securities. The firm believes, however, that over time Cisco will need to repatriate that cash in order to maintain the pace of its stock repurchase program, its acquisitions, and support this new dividend payment.
Cisco has been a strong advocate of tax breaks for multinational corporations repatriating overseas profits and investing them here. Ticonderoga believes the company is waiting for a more opportunistic time to bring cash back to the U.S.
But if Cisco is unable to receive favorable tax breaks, the company will either have to take a tax hit from repatriating cash, increase its debt levels, slow its acquisition pace or reduce its stock repurchase program, Ticonderoga believes.
We’re confident it will find a way to repatriate without incurring a heavy tax burden.
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