Cisco's yield-to-price is now up to 2.9% based on a $19.32 share price. That makes it comparable to
3.63% dividend yield based on a recent share price of $24.80 and
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.
Here's a chart which demonstrates how the share price of CSCO has followed both earnings per share and revenue growth.
Cisco's cost-saving efforts have come at an unfortunate price. Last year the company cancelled plans to focus on its core networking business and had to cut a large number of jobs as a result. In July they announced they were cutting another 2% of its employees, eliminating around 1, 300 more positions.
Cisco's $16.33 billion in total debt gives them a total debt/equity ratio of almost 32, compared to Intel's 15 and Microsoft's ratio of 19.
When it comes to return on equity numbers, Cisco's is 16.32%. This is also behind the other members of the "digital dividend club." Microsoft's ROE is an impressive 27.51% and Intel's s trailing 12-months ROE stands at 25.42%.
Perhaps Cisco will find ways to increase ROE in the quarters ahead, which is yet to be seen. The fact that the big companies they sell to are buying again is an encouraging sign, but it will have to prove itself to investors if it wants to be accorded the same respect and admiration as a Microsoft or an Intel.
Raising the dividend to a comparable level and doing something about reducing the dilution of its shares are both positive steps in the right direction for Cisco Systems. Two good quarters in a row, if that's the outlook, would also do a lot to restore it to a level anywhere near its former days of glory.
As of the time of publication the author held no positions in any of the stocks mentioned.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.