If there's one thing to learn from the overwhelming opposition this week to a dividend at

Cisco Systems

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, it's that the tax system needs to change before tech companies jump on the dividend bandwagon.

That was the message Cisco CEO John Chambers seemed to be sending to Washington and the consensus of investors and analysts who follow Cisco. Still, although shareholders defeated a dividend proposal by a 10-to-1 ratio, there may be a few other nuances to the defeat, including a poorly crafted proposal and entrenched perception of Cisco as a growth stock.

"The double-taxation issue is there, and it's real," said CIBC World Markets analyst Stephen Kamman, who has a sector perform rating on Cisco. "With Cisco committed to a

stock buyback, I think people did not want to see that

double taxation." His firm hasn't done any banking with the company.

Cisco is authorized to buy back $6.1 billion in shares, a move that would help boost earnings per share by reducing shares outstanding. For the time being, that's apparently preferable to investors, who would have to pay taxes if they received dividends. That's double taxation, because companies currently enjoy no tax deduction when they pay out dividends; rather, they pay dividends after paying taxes.

"If dividends were certain not to be double-taxed, we would look at it," Cisco CEO John Chambers said this week in what some viewed as a message to Washington. Legislators there are toying with the idea of eliminating that double taxation. That's a more likely possibility with the Republican takeover of Congress next year.

"Unless the Republicans change the double-taxation law, there's not going to be an impetus to have a dividend from

Microsoft

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or Cisco," predicted Ian Murray, a portfolio manager with Straus Asset Management in New York, who owns shares of Microsoft, but not Cisco.

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.

"I think a lot of people would rather have them putting more money into creating a new market," he added.

But John Rutledge, portfolio manager of the Evergreen Technology Fund, suggests it's time investors face reality. "I think investors should recognize the 1990s are over, and they're over for tech," he said.

Rutledge speculated that part of the reason Cisco shareholders defeated the dividend was that its size was not clear. "Nobody wants Cisco to signal they're a mature company and start paying a big dividend," he said.

But Rutledge argued a small "token" dividend makes a lot of sense, because it would bring in more conservative trust accounts that can invest only in dividend-paying stocks, leading to less volatility in Cisco shares.