As the internet has matured, so has Cisco Systems Inc. (NASDAQ:CSCO). And along with that maturity, CSCO stock has continued to be a fairly appealing stock to some investors.
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The market leader in internet routers and switches has become a stable, albeit no-growth, stock. Sales have remained stable for years, at just short of $50 billion, and about 20% of it hits the net income line.
Management has accepted this fate, and Cisco stock has been a reliable dividend payer since 2011, with its payout starting at 6-cents-per-share and rising to 29-cents-per-share and a yield of 3.2% at its Nov. 27 opening bid of about $36.50-per-share.
CSCO stock may never regain its dot-com boom glory, where it briefly touched $80-per-share and Cisco was the world’s most valuable company, but those were different days. Today, Cisco counts victory in different ways.
CSCO Stock: The Company Keeps Winning
While old-line telecom suppliers like Lucent, Alcatel and Siemens have gone away, replaced by competitors like Hewlett Packard Enterprise Co (NYSE:HPE), Juniper Networks Inc. (NYSE:JNPR) and China’s Huawei Technologies, Cisco has kept strong, and now defines telecommunications in the internet age.
The good news is this should continue to be the case. The latest quarterly market report from Synergy Research Group shows Cisco is maintaining its share of the market, which is the “lion’s share,” about 50%. In the third quarter this ticked up slightly, to 51%.
This is no small feat for CSCO stock. The market was worth $11 billion in the last quarter, $44 billion in the last year, and it is continuing to grow, albeit at 3%-per-year. China resists American products, even those from Cisco, and cloud providers like do-it-yourself solutions. But Cisco continues to grow.
In the largest market segment, which is Ethernet switching, and in the largest market, which is North America, Cisco is especially strong, with almost 60% of the market.
Sticking to your knitting pays dividends.
Cisco Stock: There’s Growth in Software
Over the last two decades, CSCO has tried to diversify away from what is now a legacy business, and get into new markets. It briefly tried to become a consumer brand with WiFi routers, buying Linksys, but it sold that business in 2013.
Chuck Robbins inherited the CEO chair from the legendary John Chambers in 2015, and he has sought growth in cloud infrastructure and support software. During the most recent quarter, 32% of revenue came from software subscriptions.
This does put CSCO stock in the crosshairs of powerful competitors, like Microsoft Corporation (NASDAQ:MSFT). Cisco has thus focused on niches like artificial intelligence and security. For now, analysts are buying its story, with more saying buy Cisco stock than anything else, and none saying sell.
But while CSCO stock remains a Wall Street darling, it’s not a market beater. While the NASDAQ Composite is up 132% in the last five years, Cisco stock is up just 94%.
Investors have kept themselves warm with a doubling of the dividend during that time. An income investor who bought Cisco stock in late 2012, when it was trading at under $20-per-share, is now getting a very nice yield on that investment, $1.17 in dividends representing a fat 6% yield, covered twice over by income and cash flow.
Bottom Line on CSCO
A market has traders, speculators and investors, each with a different aim.
CSCO stock is for investors. It won’t make you rich, but it will hold its value, in thin times and flush. It won’t deliver huge capital gains, but Cisco stock does deliver steady income. As America’s baby boomers age from work into retirement, from searching for capital gains to cash, that’s going to be appreciated.
CSCO stock is a buy and a hold.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in MSFT.