Tuesday, April 14, 2015

CSCO a hold.

Cisco systems, symbol CSCO is in so many technology portfolios including mine. Those of us who are long are eternal optimists.   It is a quality company however, the stock is not quite a Dividend Machine and one could think of it as dead money.   I have several reasons to hold this stock and they are outlined below.

Paid to wait:

CSCO has paid dividends for the past four years.   Their most recent dividend was $.21 in March of 2015 for a forward yield of 3.032%.   I have been waiting a long time for CSCO to perform and there is no question that I have a gain of over 20% but I sure would like a lot more.    Since technology is gradually inching the way back from the debacle of the dot com bust in 2001, I can hold onto CSCO because of the dividend.

Increasing Income:

Once CSCO decided to pay dividends, it has increased the payout with gusto.   They paid their first dividend four years ago at the rate of $.06 per share per quarter.   Their most recent dividend was $.21 and that is an average annual increase of 6.25% per year.  This is very a respectable dividend growth history. 

Solid Fundamentals:

CSCO is not a Dividend Machine because I require at least a 3.5% dividend yield and a five year average dividend growth rate of 4% or more for a stock to qualify as a 2015 Dividend Machine.    CSCO’s current yield is only just above 3% and their dividend history spans only four years.

Yet as you can see by the data presented in the table below, CSCO is a solid stock.  Earnings per share are $1.66 and D/E ratio is .34.

Covered Calls:

CSCO has not had great covered calls over recent years but today I was able to sell a July $30 for $.35.  My cost basis is $23 but even if you bought CSCO today, the call makes sense.   See the table below.

I am holding CSCO for a while longer and these four reasons are why.


Disclosure:  Long CSCO with calls