Based on our current holdings within our "Team Alpha" retirement portfolio, (review details here) we have plenty of cash to deploy into other opportunities.
Our portfolio now consists of; Exxon Mobil (XOM), Johnson & Johnson (JNJ), AT&T (T), General Electric (GE), Annaly Capital (NLY), Southern Company (SO), Procter & Gamble (PG), Intel (INTC), Realty Income (O), Coca-Cola (KO), Bank of America (BAC), American Capital Agency (AGNC), Intel and Wal-Mart (WMT)
With the recent developments within Cisco (CSCO), adding this stock to our core holdings makes perfect sense.
Dividends Have Been Increased Dramatically
The other day Cisco announced that it would be raising dividends by about 75%. Truly a significant increase, especially for dividend growth investors seeking income for retirement.
The yield for Cisco will now be at about 3.25% rather than the current 1.85%. This makes the stock much more of a value stock for our portfolio. Also, we increase our holdings in the tech sector to go along with Intel, giving us solid exposure for potential capital appreciation as well as that sweetened dividend.
As noted in this article;
"Cisco said on Wednesday it will raise its quarterly dividend by 75 percent to 14 cents per share after reporting fourth-quarter revenue largely in line with analysts' estimates. It also said it bought back $1.8 billion worth of shares in the quarter."
A great dividend increase as well as a formidable share repurchase is quite a powerful development for investors to seriously consider, but that is not all;
"The 75 percent increase in dividend and commitment to return at least 50 percent of free cash flow in dividend and buybacks was not expected given high offshore cash balance and should be rightly viewed as sign of overall confidence on part of Cisco," said Citi Investment Research analyst Kevin Dennean."
Based on these actions, some analysts have even raised their share price targets;
"Barclays and BMO Capital Markets both raised their price targets on the stock by $1 to $22. Citi raised its price target by $2 to $21."
I think that they are being conservative. My own personal price target is about 15% higher, just based on the number of shares outstanding, the commitment to continue the share buy backs, the increase in dividends, and the promise to return 50% of free cash flow right back to all shareholders.
I believe that with a dividend yield of firmly above 3%, Cisco will now show up on significantly more institutional traders computers, and research notes, and we could see more buying from those entities. Once the institutions commit more money to the stock, individual investors should follow suit. They always do, in my view.
A final comment by one analyst also gives more positives for the future;
"A faltering U.S. recovery and weakness in Europe have hit network equipment makers over the past year as their biggest customers - telecom service providers - cut spending and delayed purchases of new equipment.
Cisco seemed to have little hope on Wednesday that the dire economic conditions in Europe would come to an end any time soon but said it expects spending at customer AT&T Inc to increase in the second half of 2012.
Analysts believe the growth in the company's U.S business will offset the weakness in Europe over the next several quarters. Revenue from the Americas rose 7 percent in the fourth quarter.
"There are clear signs of a turnaround in the U.S. business across verticals, and this more than offset the continued weakness in Europe," BMO's Long wrote in a note to clients."
We have made several moves since building up our cash reserve in Team Alpha's portfolio;
- We added shares of American Capital as a new position.
- We increased our holdings of Annaly and Realty Income.
- We previously added Wal-Mart as a new position.
It is now time to add Cisco. The stock makes sense both from a dividend standpoint as well as the potential for capital appreciation.
We are buying the stock right now.
Additional disclosure: I will be opening a position in Cisco within one week if not sooner.