Since the start of the year, tech stocks have suffered through a massive sell-off, and it doesn’t look like things are expected to get any better soon.
However, you could consider the communication equipment company Cisco (CSCO) if you are searching for a safe investment in today’s market. It’s a stable company with plenty of money coming in every year. The payout is excellent for income investors, which makes it an attractive stock to invest in.
Cisco has been a great investment for many people because it has offered good returns and has a stable future. The company has been able to sustain itself through the economic downturns of 2008 and 2009 with very few problems.
A Tried and Tested Performer
Much like other tech stocks, Cisco stock took a battering recently. However, when looking at its earnings, revenue jumped 6% in the quarter that ended January 29.
Cisco recently decided to raise prices on its products. Management believes it will contribute to improved profitability. Cisco’s network switches, specifically their data-center networking switches, generated $5.9 billion in revenue. This seems to be a successful venture for the company.
The company’s Internet for the Future segment, which has many profitable products, including optical networking, 5G, and silicon, saw a 42% revenue increase last year. However, Cisco’s Hybrid Work segment featuring Webex offerings saw a 9% revenue decrease in the quarter.
According to Cisco, the third-quarter adjusted earnings are expected to be between $0.85 and $0.87 per share. Revenue will grow between 3% and 5%. On the outlook for 2022, Cisco expects earnings per share to be between $3.41 and $3.46 and for revenue growth to be 5.5% – 6.5%.
The outlook is very healthy and above market estimates. The only issue the company might have trouble facing is the semiconductor chip shortage.
Cisco: One of the Best Dividend Tech Stocks?
Over the last few years, Cisco has earned a reputation for being a great income play. Cisco has dramatically changed in the past decade. Its strategy is significantly different from the 1990s. It now sees dividends as a productive use of excess cash rather than something less productive.
The company has shown a willingness to share the profits with investors, increasing interest in the company.
The company’s latest dividend is $0.38 paid quarterly, a 3% increase over the last recorded figure. This percentage increase from the previous figure is an improvement worth celebrating because it shows a commitment to shareholders during a tough period.
Cisco’s dividend is $1.52 per share, and the yield is 2.97%. This is an above-average yield for the industry, which is a great sign.
Apart from the dividend, the company has also been aggressive in share buybacks. In the January quarter, Cisco repurchased $6.4 billion in stock, which is great news for investors. Cisco has also announced a $15 billion stock repurchase authorization which boosts the total authorization to $18 billion.
What Does Cisco Need to Keep Growing?
The company is on a pivot to increase recurring revenue from subscription-based software & services, and it’s doing this by pivoting away from its core product of network switches & routers.
In Fiscal 2021, Cisco advised that subscription revenue accounted for 44% of the company’s total revenue. However, by 2025, CSCO expects this number to grow to 50% as it continues to expand rapidly.
The increased use of remote work services means that corporations might not need to spend as much on their data networks during a pandemic or other disaster. A common view is that they’ll be less important because of this.
Cisco needs to increase its investments in next-gen enterprise networks significantly. It wants to help corporate customers build hybrid networks to maximize their efficiency and flexibility.
The internet cloud comprises data centers that are like giant warehouses filled with racks of computers, networking gear, and other equipment. Most of them now use 100 gigabit/second communication systems.
IT departments are struggling to keep up with 400G technology and the coming shift of workloads to this. Therefore, Cisco is one of the main companies to benefit from this trend.
Wall Street’s Take
With a conservative nature, Cisco has remained profitable for decades. The company has also grown its business by acquiring other companies and investing in new technology.
Wall Street analysts are slightly bullish on Cisco Systems, giving it a Moderate Buy consensus rating. This is based on eight Buys, eight Holds, and one Sell rating assigned in the past three months. The average Cisco price target is $63.38, implying upside potential of 23.9%.
The Bottom Line
As smarter, faster technology improves and Cisco releases new products, data, and applications, the company will continue to grow at a healthy rate. New users are signing up in droves to take advantage of all that Cisco offers.
Tech companies have seen a lot of change in recent years, which has led to them expanding massively. They have also adopted new ways to maintain sustained growth over long periods.
Though this company’s valuation is lower than others, it still provides income for those seeking to invest in a dividend likely to rise. Therefore, those looking for income will likely find this company to be a good investment option.
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