Cisco's Dividend Decision: Tax Missive to D.C.

Historically, tech investors preferred high growth over dividends, Murray noted. But with those days of high growth a distant memory and a new scandal emerging seemingly every day, more investors are looking for dividends as evidence of a company's financial health, he said. "Everyone looks at the big cash hoard at Cisco and Microsoft and says that's a logical use of that cash," he said.

Indeed, that must be along the lines of what Barry Carney, the owner of 200 Cisco shares, was thinking when he submitted his proposal that "a vote be given to shareholders to declare a quarterly dividend."

After all, Cisco has accumulated a war chest of about $21 billion in cash and is generating about $1 billion in cash a quarter. Meanwhile, Microsoft boasts an even larger cash hoard, at just over $40 billion, and that led several investors to clamor for a dividend.

Murray argues that although Microsoft's stash is even larger than Cisco's, a vote before the software giant's shareholders would go the same way because of the double-taxation issue. "I think Microsoft would pay a dividend if double taxation were changed," he added. "Everyone is in agreement that Microsoft is not a huge grower."

Daniel Morgan, a research analyst and portfolio manager at Noble Financial Group in Boca Raton, Fla., agrees that if President Bush succeeds in limiting double taxation, a lot more tech companies would be more receptive to paying dividends, especially in flat markets. But he said he believes Microsoft may be more likely to declare a dividend than Cisco because it's a more mature company.

Morgan, whose firm holds shares of Microsoft and Cisco, believes shareholders voted against the dividend proposal this week in part because they still view Cisco as a "super high-growth company." "I think a lot of people who own Cisco are waiting for the economy to turn around and telecommunications providers to start spending," he said.