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Long only, value, growth, dividend investing
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I recall the time that Cisco (NASDAQ:CSCO) CEO John Chambers said he was going to implement a dividend sometime during his tenure. The time he announced it was at the beginning of the "Great Recession", but it took a couple of additional years to implement that dividend. It was first implemented on 29Mar11 at a rate of $0.06 per quarter with a forward yield of 1.38%, and now Cisco is yielding what I consider to be an excellent 2.83% with even more room to grow. Since the implementation of the dividend, the dividend has been raised three times. I'll delve into the fundamentals, financials, and technicals of the stock to see if it's worth picking up some more right here.

Fundamentals

Cisco currently trades at a trailing 12-month P/E ratio of 13.34, which is inexpensively priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 11.41 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $2.10/share and using that forward P/E value I'd consider the stock cheap until at least $31.50. The PEG ratio (1.6), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 5-year horizon), tells me that Cisco is fairly priced based on a 5-year EPS growth rate of 8.33%.

Financials

On a financial basis the things I look for are the dividend payouts, return on assets, equity and investment. Cisco boasts a dividend of 2.83% with a payout ratio of 29.3% while sporting return on assets, equity and investment values of 10.2%, 17.8%, and 11.8% respectively; which are all respectable values. If maybe you feel the market will retract a little more and would like a safety play then maybe the 2.83% yield of this company is good enough for you to take shelter in for the time being. Cisco goes ex-dividend on 01Jul13, with a $0.17/share dividend and is payable to shareholders on 24Jul13.

Technicals

(click to enlarge)

On a technical basis the first thing I look at is the relative strength index [RSI] chart at the top which tells me if a stock is in the oversold or overbought territory. I see the stock at around a middle ground value of 52.48 but with a downward projection, this tells me that there may be a little bit of downside to the stock. To confirm that I will look at the moving average convergence-divergence (MACD) chart next and see that the black line has crossed below the red line and that the divergence bars are increasing in height to the downside indicating there may be a bit of downside coming. As for the stock price itself ($24), it's a little under the 20-day moving average and I'd expect the 20-day moving average to act as resistance. If the stock can break free of the 20-day moving average I can see it going to $25.77, but if it can't I see it going down to $23.03 for a risk/reward of -4.04% to 7.38%.

Recent News

  1. The Juniper (NYSE:JNPR) CEO stated that he's seeing a pickup in carrier router spend, no this can either be interpreted as business is picking up for the entire sector or that they are stealing share away from Cisco.
  2. Cisco announced it will buy Composite Software which will provide software assets as Cisco moves forward with future product development.

Conclusion

From the information I gathered here I see Cisco as a short-term value play while paying you a great dividend yield. Technically there may be a little downward movement on the stock with what I calculate to be a risk of -4.04% for the immediate short term, which will make me wait a couple of days before buying a little bit more of the stock. A great example of this downside movement was exhibited today (25Jun13) as the broader market was up 0.95% (as measured by the S&P 500) while Cisco itself was down 0.21%. Maybe I'll pull the trigger later this week. Either way I will definitely be purchasing some more shares of this great company before the ex-dividend date.

Source: Cisco Is A Great Value Stock With A Growing Dividend