Income Investors Should Steer Clear of Cisco Systems Inc (NASDAQ:CSCO)

Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Over the past 7 years, Cisco Systems Inc (NASDAQ:CSCO) has returned an average of 3.00% per year to shareholders in terms of dividend yield. Does Cisco Systems tick all the boxes of a great dividend stock? Below, I'll take you through my analysis. Check out our latest analysis for Cisco Systems

How I analyze a dividend stock

When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:

• Is their annual yield among the top 25% of dividend payers?
• Has it paid dividend every year without dramatically reducing payout in the past?
• Has dividend per share amount increased over the past?
• Does earnings amply cover its dividend payments?
• Based on future earnings growth, will it be able to continue to payout dividend at the current rate?

How well does Cisco Systems fit our criteria?

The current payout ratio for CSCO is negative, meaning that the company is not yet profitable and is paying dividend by dipping into its retained earnings. If there is one thing that you want to be reliable in your life, it's dividend stocks and their constant income stream. Unfortunately, it is really too early to view Cisco Systems as a dividend investment. It has only been consistently paying dividends for 7 years, however, standard practice for reliable payers is to look for a 10-year minimum track record. Compared to its peers, Cisco Systems has a yield of 2.62%, which is on the low-side for Communications stocks.

Next Steps:

After digging a little deeper into Cisco Systems's yield, it's easy to see why you should be cautious investing in the company just for the dividend. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. I've put together three key aspects you should look at:

1. Future Outlook: What are well-informed industry analysts predicting for CSCO’s future growth? Take a look at our free research report of analyst consensus for CSCO’s outlook.
2. Valuation: What is CSCO worth today? Even if the stock is a cash cow, it's not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether CSCO is currently mispriced by the market.
3. Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.