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Interested In Cisco Systems' (NASDAQ:CSCO) Upcoming US$0.36 Dividend? You Have Four Days Left

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Simply Wall St
·4 min read
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Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Cisco Systems, Inc. (NASDAQ:CSCO) is about to go ex-dividend in just 4 days. If you purchase the stock on or after the 4th of January, you won't be eligible to receive this dividend, when it is paid on the 20th of January.

Cisco Systems's next dividend payment will be US$0.36 per share, and in the last 12 months, the company paid a total of US$1.44 per share. Based on the last year's worth of payments, Cisco Systems has a trailing yield of 3.2% on the current stock price of $44.64. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Cisco Systems has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Cisco Systems

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Cisco Systems paid out 58% of its earnings to investors last year, a normal payout level for most businesses. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It distributed 40% of its free cash flow as dividends, a comfortable payout level for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
historic-dividend

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Cisco Systems earnings per share are up 7.0% per annum over the last five years. Decent historical earnings per share growth suggests Cisco Systems has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Cisco Systems has increased its dividend at approximately 20% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

The Bottom Line

Should investors buy Cisco Systems for the upcoming dividend? While earnings per share growth has been modest, Cisco Systems's dividend payouts are around an average level; without a sharp change in earnings we feel that the dividend is likely somewhat sustainable. Pleasingly the company paid out a conservatively low percentage of its free cash flow. All things considered, we are not particularly enthused about Cisco Systems from a dividend perspective.

Curious what other investors think of Cisco Systems? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.