Investors are welcoming the announcement of Cisco's first dividend of 6 cents, which would represent a yield of about 1.4 percent. It's about time: the company is sitting on $40 billion in cash.
One important note: Cisco [CSCO 17.27 0.27 (+1.59%) ] hit a multiyear low yesterday, and has dramatically underperformed the Nasdaq in the past eight months. In that period, Cisco is down almost 30 percent, while the Nasdaq is up about 18 percent.
The major problem: Cisco is just too big, and steady and boring versus other high growth tech names. Tech is about investing in growth, and Cisco doesn't have enough of it. Microsoft [MSFT 25.00 0.22 (+0.89%) ] is another example: over-owned and now trading close to the lows for the year.
Every earnings period recently — May, August, November of last year and February of this year — Cisco has dropped following the announcement, from $27 in May of last year to $17 today, as investors have been underwhelmed by its growth prospects.
Finally, if you think a dividend announcement is a cure-all, you should read the note this morning from stock analyst firm Bespoke Investment Group. They noted that tech stocks with dividends don't outperform those that don't have them.
The 34 tech stocks that pay dividends, Bespoke said, have averaged a total return of 11.03 percent over the last year. The 41 tech stocks that do not not pay dividends have averaged a 21.6 percent return.
I would argue it's well past the time for management change at the top. The stock chart tells the story. Below is the monthly chart of CSCO. It's still off almost 80% from it's 2000 high and not that much above recent 2009 lows.
The stock is down big and has remained DEAD MONEY during one of the great rallies of all time the past two years. The dividend announcement might be a confirmation they have nothing for the future and have decided to return cash to investors.
Is it time for a new CEO? The chart says "yes!" The dividend announcement is nothing short of a distraction.
Hope all is well.
J.D. Rosendahl, Rosey