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Cisco Joins the 'Digital Dividend Club'

NEW YORK (TheStreet) -- Another bellwether of the big technology companies, Cisco Systems (CSCO) is earning enough income to pay a generous dividend to income-hungry investors.

Cisco's yield-to-price is now up to 2.9% based on a $19.32 share price. That makes it comparable to Intel's (INTC) 3.63% dividend yield based on a recent share price of $24.80 and Microsoft's (MSFT) 2.61% yield based on a stock price of $30.60.

Interesting too is the fact that all three companies are currently trading at a share price that reflects a forward price-to-earnings ratio under 10, with both CSCO and MSFT trading at closer to 9 times forward earnings. These kinds of multiples suggest that the members of this troika might be considered "value stocks" in line with some of the healthier, growth-oriented utility companies.

Cisco had an excellent second quarter if measured by net income which rose 56% in their fiscal fourth quarter. Their revenue rose 4.4% which brings their trailing 12 months revenue to over $46 billion. That brings revenue-per-share to $8.58.

The most recent quarter's total cash surged above $48 billion and their levered free cash flow is up to $9.3 billion for the trailing 12-month period. With Cisco's $.56 annual dividend, their payout ratio is a sustainable 19%, and if profits keep rising I'd expect that dividend payout to increase as well.

Cisco made it clear in their quarterly report that it would return more than 50% of its free cash flow to shareholders between their dividend and the regular share buyback program.

What impressed Wall Street and many analysts was CEO John Chambers' cheery, optimistic tone in the prepared text of his comments and announcements. He said that Cisco's business operations in the U.S. were hanging in there nicely, although the situation in Europe remained challenging.

In the U.S., Chambers noted orders increased at the end of the company's last quarter and its biggest customers were buying Cisco products once again. Chambers mentioned a shift in the company's approach to networking that emphasizes software. This helped explain their recent $1 billion acquisition of a start-up company that has been breaking new ground in this very new way of networking, which is in its infancy.

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