A detailed quantitative analysis by Cisco Systems, Inc. (CSCO) is linked here. Below are some highlights from the analysis linked above:
Company description: Cisco Systems, Inc. offers a complete line of routers and switching products that connect and manage communications between local and wide area computer networks using a variety of protocols.
Fair value: When calculating the fair value, I take into account the differential fair value of the present value MMA along with these four fair value calculations. A detailed description can be found on page 2 of the linked PDF:
1. Avg. High yield price
2. 20-year DCF award
3. Avg. P / E price
4. Graham Number
CSCO trades at a discount of only 3.) above. Including the NPV MMA differential, the stock is trading at a premium of 121.8% over the calculated fair value of $ 20.32. CSCO has not received any stars in this area.
Dividend analytical data: There are three possible stars and three key metrics in this section. A detailed description can be found on page 2 of the linked PDF:
1. Free cash flow payout
2. Debt to total capital
3. Key Metrics
4. Dividend Growth Rate
5th years Div. growth
6. Rolling 4 year old Div. > 15%
CSCO has earned two stars for 1.) and 2.) above in this section. A star was earned because the free cash flow payout ratio was less than 60% and there were no negative free cash flows in the last 10 years. The stock earned a star because its recent debt to total capital was less than 45%. The company has paid a cash dividend to shareholders every year since 2011 and has increased its dividend payments for eleven consecutive years.
Dividend Income vs. MMA: Why would you take the equity risk and invest in a dividend stock when you could get a better return on a much less risky money market account (MMA) or a government bond? This section compares that stock’s earning power to a High performance MMA. There are two points covered in this section. A detailed description can be found on page 2 of the linked PDF:
1. NPV MMA Diff.
2. years to> MMA
The NPV MMA Diff. of the $ 234 is below the $ 2,400 target I’m looking for for a stock that has increased dividends as long as CSCO has done so. The stock’s current return of 3.2% exceeds the estimated average MMA rate of 2.74% for 20 years.
Peers: The company’s peer group includes: Juniper Networks, Inc. (JNPR) with a yield of 3.4%.
Conclusion: CSCO did not deserve any stars in the Fair Value category, earned two stars in the Dividend Analytical Data category, and did not deserve two stars in the Dividend Income vs. MMA category. This means that CSCO is quantitatively referred to as 2 star weak Camp.
With my D4L-PreScreen.xls Model, I found that the stock price would have to drop to $ 19.23 before CSCO’s NPV MMA differential rose to the minimum of $ 2,400 that I’m looking for on a stock with 11 years of consecutive dividend increases. At that price, the stock would generate a 7.5% return.
Resetting the D4L-PreScreen.xls Model and solution for the dividend growth rate required to achieve the targeted MMA differential of $ 2,400. The calculated rate is 9.8%. This dividend growth rate is higher than the 1.4% used in this analysis, so there is no margin of safety. CSCO has one Risk assessment of 2.00, which it classifies as a medium risk stock.
CSCO competes in a highly competitive industry but is the dominant player with a significant market share over its closest competitor, Hewlett-Packard. The Ethernet switches and routers that transmit data on local computer networks are considered the gold standard by network managers. An improving economy, high demand for data center solutions, and migration to cloud networks will drive corporate network spending from which CSCO will benefit directly.
The company’s liquidity allows it to return value to its shareholders through regular share buybacks and dividends. Since I first recommended and bought CSCO for $ 20.49 in December 2013, it has had an annualized internal rate of return of 14.6%. I will continue to look for ways to improve my position if the stock trades near or below my calculated fair value of $ 20.32 and if my allocation allows.
Disclaimer: The material presented here is for informational purposes only. The above quantitative stock analysis, including the star rating, is mechanically calculated and based on historical information. The analysis assumes that the share will develop in the future as it has in the past. In general, this is never true. Before buying or selling stocks they should do your own research and arrive at your own conclusion. Please see my disclaimer for more information.
Full disclosure: At the time of this writing, I was long with CSCO (3.3% of my dividend growth portfolio).
On the subject of matching items:
– Analysis of the dividend stocks of Wal-Mart Stores, Inc. (WMT)