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Buy Cisco's Dividend

Also, unlike its third-quarter report when it disappointed investors with its guidance, Cisco said for the current quarter it expects earnings per share of 45 cents to 47 cents on revenue in the range of $11.5 billion to $11.9 billion, in line with analysts' EPS forecasts of 46 cents and revenue of $11.7 billion.

Although these figures are moderately better than its previous quarter, its year-over-year forecast is still somewhat cautious and suggesting 2%-4% growth, supporting the Europe-sensitive outlook that names such as Riverbed (RVBD) and Brocade (BRCD) provided in their reports.

Besides the dividend announcement in its earnings report and its overall attitude towards capital redistribution, the company also said it is striving to return to shareholders a minimum of 50% of its annual free cash flow. This is on top of having increased its dividend by 75% and placing its now 3% yield in the upper echelon of tech issuers.

So the question is, where is the risk in owning the shares at this point? It's hard to find any, particularly considering the company has over $30 billion in net cash and that figure is poised to grow commensurate to its revenue.

For this reason, the stock has a great chance of trading at $25 over the course of the next six to 12 months despite the fact that it currently trades with minimal expectations.

Even on the most conservative assumptions the stock would be fairly valued at $28 when factoring its cash on the balance sheet with 4% free-cash flow growth annually. Investors would be wise to add Cisco as it just might become the most undervalued stock on the market.



At the time of publication, the author held no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Richard Saintvilus is a private investor with an information technology and engineering background and has been investing and trading for over 15 years. He employs conservative strategies in assessing equities and appraising value while minimizing downside risk. His decisions are based in part on management, growth prospects, return on equity and price-to-earnings as well as macroeconomic factors. He is an investor who seeks opportunities whether on the long or short side and believes in changing positions as information changes.
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