Yesterday after market close, Cisco Systems, Inc. (NASDAQ:CSCO) announced its fourth quarter and fiscal year 2012 financial results, along with a new “capital allocation strategy” which included a 75% increase in dividends.
Cisco promotes itself as “the worldwide leader in networking that transforms how people connect, communicate and collaborate”. The company states its strategy as “delivering intelligent networks and technology architectures, built on integrated products, services and software platforms, to fuel our customers’ businesses — is proving the right long-term strategy for our success. There is no question that our industry and our world are evolving quickly and Cisco is squarely at the center of major technology market transitions — cloud, mobile, visual, virtual and social.”
Net sales for fiscal 2012 increased 7% to $46.1 billion and GAAP earnings per share increased 27% to $1.49. These numbers appeared to be roughly in line with, but a little better than, expectations. In after-hours trading, shares of CSCO rose by over 5%.
But what seemed to excite the market most was Cisco’s announcement that it planned to increase dividends by 75%, plus continue its share repurchase plan. In its press release on the issue, Cisco’s EVP and Chief Financial Officer Frank Calderoni was quoted as saying the company’s plan is to “return a minimum of 50% of our free cash flow annually through dividends and share repurchases to our shareholders”, and that Cisco had the financial strength to do that while still investing in the business and pursuing other opportunities such as acquisitions.
Over the past five years, CSCO has dropped 45%in value, while the Dow Jones Industrial Average has broken even and the NASDAQ composite index has increased 21%. But Wall Street seems to be becoming more positive about CSCO after a restructuring, its demonstrated ability to execute its plans and signs that demand for telecommunications gear is recovering.