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How Does Cisco Increase Shareholder Value?

What Drove Cisco’s Revenues in Fiscal 3Q16?

(Continued from Prior Part)

Share repurchases and dividend yield

In the first nine months of fiscal 2016, Cisco (CSCO) returned $6.6 billion, or 75%, of its free cash flow to shareholders. In fiscal 3Q16, Cisco returned $2 billion to shareholders. The $2 billion included $649 million in share repurchases and $1.3 billion in dividends. Cisco also announced a 24%, or $0.05, YoY (year-over-year) rise to its quarterly dividend to $0.26 per share. Cisco had earlier announced an authorization increase of $15 billion for its share repurchase program.

Cisco’s dividend yield rose from $0.17 in fiscal 3Q13 to $0.19 in fiscal 3Q14 and $0.21 in fiscal 3Q15. Cisco increased its dividend yield 11.8% YoY in fiscal 3Q14, 10.5% YoY in fiscal 3Q15, and 24% YoY in fiscal 3Q16. The total increase was 53% over the last three years.

Peers’ dividend yields

IBM (IBM) increased its dividend yield 11.8% YoY in 1Q14, 15.8% YoY in 1Q15, and 18.2% YoY in 1Q16. This was a rise of 53% over the last three years. EMC (EMC) increased its dividend yield 15% YoY in 1Q15 to $0.12. Its yield has been unchanged since then.

Cisco has a dividend yield of 3.7% while IBM (IBM), EMC, and NetApp (NTAP) have dividend yields of 3.8%, 1.7%, and 2.7%, respectively. IBM accounts for 2.9% of the Technology Select Sector SPDR ETF (XLK).

Cisco expects revenue growth in the range of 0% to 3% for fiscal 4Q16. Cisco’s CFO, Kelly Kramer, said, “Overall Q3 was a very solid quarter and a difficult macro environment. We focused on strong operational executions resulting in top line growth, stronger gross margins and continued operating leverage consistent with our expectations.”

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