Cisco Systems (NASDAQ:CSCO) stock is one of the hottest tech stocks of 2019, as investors prioritize safety over all else.
Cisco stock is up 19% in 2019, but its dividend, recently hiked to 35 cents per quarter, still pays a nice yield of 2.71% as of this morning. And the price-earnings ratio of CSCO stock is under 19, so the shares aren’t expensive.
Best of all, that dividend is covered twice-over by earnings. Cisco has shown a commitment to the payout since 2011, when it was started at 6 cents per share. Investors who bought Cisco stock then, when the price of the shares was a little over $17, have tripled their money and now have a double-digit yield that looks as solid as Microsoft’s (NASDAQ:MSFT) payout.
The 5G Hype
Cisco stock should keep rising thanks to the hype over 5G, the new wireless technology everyone’s talking about at this week’s Mobile World Congress.
CSCO is making one of the biggest investments in the new technology, but 5G has yet to positively impact its results. Cisco’s revenue of $12.4 billion for the quarter ending in January was actually its lowest quarterly revenue in a year, and just 7% ahead of last year’s $11.9 billion.
The launch of 5G will require both wireless and wireline networks to be rebuilt. The new technology takes advantage of higher frequency bands and can match the gigabit-per-second speeds of the latest wired systems. Additionally, new application spaces based on adding computer controls for objects and devices should increase demand for Cisco’s entire line of networking gear.
Meanwhile, CSCO has transformed itself from a company with seasonal results based on hardware sales to one with steady results based on subscriptions for software, including security tools.
The Cisco of CEO Chuck Robbins is very different from that of his predecessor, the legendary John Chambers. Now Cisco stock appeals to a different type of investor than in the past. Chambers created enormous capital gains in the 1990s. In fact, at the turn of the century, CSCO was the most valuable company on the planet. Robbins’ CSCO is more conservatively managed, focused on delivering a steady stream of earnings and dividends to more conservative investors.
Can Cisco Stock Keep It Up?
The question for a tech company on a roll is always whether its good performance will continue. Cisco seems to have a decent chance. While the rise of Huawei would have been a huge headwind for Chambers’ hardware-focused Cisco, Robbins’ company has neatly sidestepped the Chinese company. Driven by software subscriptions, the gross margins of CSCO are over 60%.
Cisco is next due to report its quarterly results on May 15, and analysts’expectations for its results are modest; specifically, analysts’ consensus estimate calls for revenue of $12.89 billion, just marginally ahead of the company’s top line of $12.46 billion in the same quarter last year. The consensus estimate for earnings per share of Cisco stock is 63 cents, compared to last year’s 56 cents. Given the increased demand for cloud-based software and networking, CSCO should easily beat those estimates.
The Bottom Line on Cisco Stock
Cisco stock is not for everyone.
If you need fast capital gains now, you’re much better off with an IT security company like Palo Alto Networks (NASDAQ:PANW), which is growing its revenue off a lower base. PANW stock is up 37% so far this year, against an 18% gain for Cisco.
But if you’re looking for safety and income, as well as a tech stock with good prospects, Cisco stock may be for you. You can buy it at a decent price right now, accumulate it steadily, and look back eight years from now with the same smile that someone who bought CSCO stock in 2011 wears today.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, 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.
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