Wednesday, September 15, 2010

Cisco Systems Inc. said it will begin paying a dividend

What can I say but: as identified some time ago in my previous Blogs that US corps will start to pay dividends.

Aivars Lode

Cisco Systems Inc. said it will begin paying a dividend, becoming the latest technology behemoth to start returning cash to shareholders as the companies have matured.

Cisco's dividend yield—or the payout as a percentage of the company's share price—will be 1% to 2%, said Chief Executive John Chambers during a meeting Tuesday with financial analysts.

The San Jose, Calif., networking-technology company will begin paying the dividend before the close of its current fiscal year ending July 31, 2011, he added.

The decision follows calls from investors for Cisco to return some of its cash hoard to shareholders. Cisco held $39.9 billion in cash as of July 31, up from $35 billion a year earlier.

Cisco shares rose 19 cents, or less than 1%, to $21.45 at 4 p.m. on the Nasdaq Stock Market.

In the past, the company has largely used its cash to make acquisitions and to repurchase its shares. Cisco has spent $65 billion on stock buybacks in the last nine years, said Chief Financial Officer Frank Calderoni.

Cisco is the latest large tech company to begin issuing a dividend. Historically, tech companies shunned dividends, viewing them as a trapping of mature companies, rather than young, fast-growing concerns.

But as growth rates of many of the tech giants have slowed over time, many have begun returning their cash through dividends.

Microsoft Corp. began issuing a dividend in 2003. Last year, Oracle Corp. began paying a dividend, even as companies in other industries cut back their dividend payouts amid the economic downturn.

Cisco's growth rate has slowed over the past decade. Whereas it once posted annual revenue growth of 30% to 60% during the dot-com boom, the company's annual growth rate for the past five fiscal years has averaged around 10%.

Cisco has said it is aiming for 12% to 17% annualized growth rates over the next three to five years and has broadened its portfolio of products to goose its growth.

Mr. Chambers had said repeatedly that Cisco would pay a dividend before his retirement. Following the dividend announcement, the longtime CEO said he would continue in his position for at least three to five more years.

Mr. Chambers said Cisco will decide in early 2011 whether the dividend yield will be closer to 1% or 2%, based on whether the U.S. government raises taxes on dividends at the end of 2010.

He added that the size of the dividend also will depend on whether the government eases taxes on the repatriation of corporate cash holdings overseas; a large percentage of Cisco's cash is outside the U.S.

Mr. Chambers reiterated his cautious view of the U.S. economy, which he outlined last month when Cisco reported its latest quarterly results. "It's getting a little bit bumpy," he said, before adding that he remains bullish about Cisco's prospects.

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