American IT giant Cisco Systems, Inc. (CSCO) has had a relatively volatile year to date, with equity shares opening in January just at $18, reaching a high of $21.30 in late March, and then falling to today's mid-$17 range. In the news lately in the context of new acquisitions, ratings upgrades by Goldman Sachs and rising industry sentiment, things seem to be going smoothly for Cisco across the board.
Several specific lots of fixed-income issues from the firm, however, are quite compelling for potential investors. For investors wary of the risks in equities of this fantastic company, it may be worth taking a look at a few of its corporate bonds that offer some near-4% yields:
1) Cisco Sys Inc CUSIP 17275RAD4
There are currently 250 of these industrial bonds on the market in the highest-yielding lot, with minimum purchase quantity 10 and purchase price of 136.298 cents on the dollar. The bonds are non-callable, taxable, and dated February 17, 2009 with book entry delivery. These bonds mature on February 15, 2039 and are rated investment grade (A1) for the long-term by Moody's analysts, who cite "strong market positions...broad diversification...[and] conservative financial practices" in their analysis. Coupon payment is 5.9%, with pay months February and August; first coupon was paid on August 15, 2009. Current yield for the bonds is 4.329%, with a nice yield to maturity of 3.731%. For the individual investor, principal and accrued interest costs for ten of these bonds would come to a total cost of $13,631.44.
The next five highest yielding bond offerings in Cisco's fixed-income issues also happen to come from the same CUSIP, with same coupon, maturity, etc. but slightly lower yields to maturity due to higher purchase price (3.681%, 3.675%, 3.670%, 3.662%, and 3.652% respectively as of the time of publication of this article). I recommend investing in this first bond issue if liquidity permits in the market today. If not, investors may consider looking at the next-highest yielding alternative from CSCO:
2) Cisco Sys Inc CUSIP 17275RAF9
These bonds carry a 5.5% coupon and are dated November 17, 2009 with maturity January 15, 2040. They are also non-callable, taxable, and rated the same by Moody's. Payment is semiannual with pay months January and July, and the first coupon was paid on January 15, 2010. Current yield on the bonds is 4.138% and yield to maturity stand at 3.601%. For the individual investor looking to purchase ten of these bonds (minimum quantity, highest yielding lot has 250 total quantity), principal and accrued interest would come to $13,338.87 - the bonds are priced at 132.915 cents on the dollar.
Investors should be sure and investigate all the factors involved to see if this investment and its risk characteristics are appropriate for their investment strategy and objectives before entering into a purchase of these bonds. Still, for investors that fit a certain profile, these securities offer a relatively safe yield higher than you could find at your local bank (though admittedly more risky).
Be careful when examining corporate fixed-income securities to see if any bonds in question have special redemption provisions that might result in a lower yield to worst than anticipated.
Fixed-income investors should conduct their own due diligence on all potential investments before making final investment decisions. Investors should remember that these notes are not bank deposits and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency, and that the integrity of the notes is based upon Cisco's credit solvency and ability to service its debts to bondholders and creditors into the future.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in CSCO over the next 72 hours.