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Buy Cisco's Dividend

NEW YORK (TheStreet) -- Placing a fair valuation on networking giant Cisco (CSCO) has never been an easy task.

Even harder is trying to convince investors to be a bit more patient in expecting the sort of returns the company once produced, helping it to become at one time one of the largest companies in the world.

Those tech-bubble days are over. While expectations have leveled off a bit for the entire sector, in Cisco's case it's at the point where too little is now expected and investors are ignoring the good that still remains.

The fact of the matter is, in the all-important routing and switching businesses where it competes with Hewlett-Packard (HPQ), F5 (FFIV) and Juniper (JNPR), Cisco still owns over 50% and 60% share, respectively, in those markets.

As noted, those business are no longer growing at the rates they once did. But with their strong recurring revenue they remain areas of Cisco's business poised to surge due to expected demand for data. Cisco is banking on a recent study that suggests bandwidth for increased data will soon come at a premium. There will be no other company better positioned to capitalize on that growth.

What's more, the company is now so certain of its future and its ability to compete effectively that it has decided to return value to shareholders by increasing its dividend by 75%.

The new quarterly dividend of 14 cents per share now represents an annual yield of 3.2% of the company's current stock price -- offering yet another reason to be bullish on the company.

In its most recent fiscal fourth quarter, Cisco earned $1.9 billion, or 36 cents per share, compared to the same period of a year ago when it earned $1.2 billion, or 22 cents per share. Excluding costs and special items, earnings arrived at 47 cents, or 2 cents higher than consensus. Analysts were expecting net income of 45 cents per share on revenue of $11.62 billion, an increase from the 35 cents earned the previous year.

The company reported revenue of $11.7 billion, beating analysts' estimates while topping last year's mark of $11.2 billion. The better-than-expected results were largely attributable to growth in North America -- in particular the U.S. as sales grew 7%. For the full fiscal year, the company earned $8.04 billion, or $1.49 per share, representing an increase of 24% from $6.49 billion, or $1.17 per share, in fiscal 2011, while revenue arrived at $46.1 billion, up 7% from $43.2 billion in the previous year.

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