Cisco shares rise as dividend hike eclipses sales worries

SAN JOSE, Calif., Thu Aug 16, 2012 – Shares of Cisco Systems Inc. looked set to open up 7 percent on Thursday after the network equipment maker’s dividend hike overshadowed a lackluster quarterly sales performance and prompted several brokerages to raise their price targets on the stock.

Shares of the company, which closed at $17.35 on the Nasdaq on Wednesday, rose to $18.49 in premarket trading on Thursday. The stock had fallen 11 percent after Cisco reported a weak third-quarter profit in May.

Cisco said on Wednesday it will raise its quarterly dividend by 75 percent to 14 cents per share after reporting fourth-quarter revenue largely in line with analysts’ estimates. It also said it bought back $1.8 billion worth of shares in the quarter.

Barclays Capital analysts said the higher dividend suggested a significant shift in direction and placed Cisco near the high-end of its large-cap IT tech peers such as Hewlett-Packard Co., Intel Corp. and Microsoft Corp. in terms of dividend yield and free cash flow.

“The 75 percent increase in dividend and commitment to return at least 50 percent of free cash flow in dividend and buybacks was not expected given high offshore cash balance and should be rightly viewed as sign of overall confidence on part of Cisco,” said Citi Investment Research analyst Kevin Dennean.