February 13, 2014 (Chinavestor) Cisco Systems (NASDAQ:CSCO) reported quarterly financials after the closing bell yesterday. The stock fell after-hours and pre-market and is set to continue to slide based on trading characteristics. See related article: CSCO is set to decline just like AMZN did
Besides trading for the day, it is important to see clearly where the stock may be heading for the next three to six month. Looking at similar tech stocks such as Apple Inc. (NASDAQ:AAPL), IBM (NYSE:IBM) and Microsoft (NASDAQ:MSFT) is always helpful.
The first step is to consider how do these mature tech companies return value to investors. Clearly, delivering stock price appreciation is very difficult for them. Instead, all these companies have been increasingly turning to paying dividends as well as undertaking aggressive stock buyback programs. Stock buybacks are designed to lift the stock price but have failed in many instances. Paying dividend is fix cash in investors' pocket and may be a better way to lure investors.
Dividend payout ratio is 3.11% for Cisco Systems (NASDAQ:CSCO), higher than Apple's 2.26%. IBM (NYSE:IBM) stood at $.95 or 2.10% in the last quarter while Microsoft (NASDAQ:MSFT) pays 2.96%. Obviously, Cisco (NASDAQ:CSCO) is paying more than these competitors. Can CSCO can do it because it hasn't got into an ambitious stock buyback program (yet). But that's about to change...
The balance sheet is the starting point investigating how much dividend a company can pay. The more leveraged a company is, the less financial muscle it has to pay out cash. Based on the following four charts, Cisco Systems (NASDAQ:CSCO) is looking good compared to its peers. Cisco's debt to asset ratio is 20%, much less than IBM's 30%. Apple Inc. (NASDAQ:AAPL) has virtually no debt and Microsoft (NASDAQ:MSFT) is low leveraged as well. Based on balance sheet analysis, Cisco (NASDAQ:CSCO) has plenty of room left to increase dividend payment.
The basis for paying dividend is net income! The more money the company makes the more it can distribute to shareholders. To find how much Cisco (NASDAQ:CSCO) or AAPL, IBM and MSFT can pay out as dividend, investors have to see top and bottom line growth from the income statement. Cisco Systems (NASDAQ:CSCO) has been maturing for the last two years as the following charts testify. Total revenue has been virtually flat on a quarter over quarter basis. Cisco's top/bottom line growth resembles closest to that of Microsoft Corp. (NASDAQ:MSFT). See MSFT chart below. Apple Inc. (NASDAQ:AAPL) is the fastest growing among these four companies on a yearly basis but the quarterly break-down foreshadows future growth. IBM (NYSE:IBM) has been virtually flat, delivering zero top/bottom line growth.
While IBM (NYSE:IBM) has no growth, the company remains highly profitable. Growth for Apple Inc. (NASDAQ:AAPL) may be in trouble going forward, yet AAPL is a real cash producing machine. The same goes for Microsoft (NASDAQ:MSFT) as the following cash flow analysis reveals. What about Cisco Systems (NASDAQ:CSCO)?
Cisco's operating cash flows are strong! Cisco Systems (NASDAQ:CSCO) is returning value to investors somewhat differently than its peers. CSCO is not engaged in a massive stock buyback program like IBM (NYSE:IBM) is. CSCO is investing in future technologies instead, as cash from investing chart reveals. It's difficult to see if this will pay out. But may be a good try!