Cisco can still fit in as a stock to own for the next decade for many investors. There are some caveats of course, and some investors rightfully will wonder if there are better opportunities than Cisco. In order even to qualify as a stock to own for the next decade, a company has to pay a stable or growing dividend, with basic earnings predictability and ongoing market opportunities ahead. That automatically screens out many of the high-flying companies like Amazon, Alphabet, Facebook, Netflix and so on that have greatly outperformed Cisco in the past decade.
Where things stand now is that Cisco is under an entirely different leadership team. It’s now a Chuck Robbins company top to bottom, and it has been restructured handily since John Chambers ran the company. While Cisco has been changing its model, the company has only grown annualized revenues from $40 billion to about $50 billion as of last look. That is not exactly barn-burning growth, to put it nicely.
Another issue to consider is that Cisco is one of the few tech giants from the dot-com era stock market bubble in 1999 and 2000 that has still not even reached its all-time high. And with a current market cap of about $245 billion, Cisco has spent somewhere close to $80 billion in share buybacks during the past decade alone.
One issue that makes it quite difficult to value Cisco’s future from today, and versus 10 and 20 years ago, is that Cisco keeps making acquisitions that range from bolt-on deals to upstarts that can be rapidly expanded by its team. This is a time when selling routers, switches and core web traffic equipment has changed greatly from Cisco’s meteoric rise during and after the 1990s.
As of April 2019, Cisco listed its balance sheet “goodwill” as more than $33.5 billion. Just some of Cisco’s big acquisitions over time have been Scientific Atlanta for almost $7 billion, WebEx for about $3 billion, Sourcefire for more than $2 billion, AppDynamics for over $3 billion, Broadsoft for almost $2 billion and the most recent, Acacia Communications for about $2.7 billion. Cisco’s full list of acquisitions over time has been too vast to fathom, and many of the efforts made back then are not even part of the real mix today.
Despite Cisco having exponentially raised its dividend payments from a decade ago, its yield of 2.50% at the current time is only in the middle of the pack for Dow Jones industrials. Cisco’s $1.40 annualized dividend per share payment is also not even quite half of its expected current year’s $3.08 in adjusted earnings per share.
Cisco still dominates in the world of networking and communications markets, but by adding more security, services and recurring revenues the company is now no longer beholden only to new equipment sales and upgrades. Cisco will continue to buy back shares and easily has room to grow its dividend ahead. Wall Street seems to think that sales growth will be in the mid-single digits for the years ahead, which may not be aggressive compared to likes of Amazon, Alphabet and other tech giants. Still, it might be another decade before the fast growth stocks of the past decade even decide to start paying out dividends.
Cisco is not alone in the technology world of having long-term debt. That face value was $16.6 billion in long-term debt as of early 2019, but that is down handily from the $25-plus billion in long-term debt just two years ago.
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