Cisco Systems Inc plans to pay a cash dividend to shareholders for the first time, helping appease investors' concerns about its growth and eroding margins and sending its shares up nearly 3 percent. Avian Securities analyst Catharine Trebnick said the quarterly dividend of 6 cents per share, which will be paid to shareholders starting on April 20, broadens the company's appeal to Wall Street as its growth has waned in recent quarters.
"This gives Cisco another class of investors to bring into the stock who are more interested in a dividend payout, rather than high growth," she said. Cisco, along with Apple Inc and Google Inc, had been one of the few remaining cash-rich tech companies to resist dividend payments, prioritising share repurchases and growth through acquisitions.
But with a maturing business, investors had been demanding regular dividends and the company promised last September to begin paying them in fiscal 2011, which ends in July. Microsoft began paying dividends in 2003 and has since been raising them.
Wall Street has been expecting a rebound in dividend payments this year as companies who have been sitting on cash decide to reward shareholders as the economy improves, as well as attract cautious investors who like the stability of a dividend payout.
The move comes as investors have worried about rivals such as Juniper Networks Inc challenging Cisco in routing and switching. One-time sales partner Hewlett-Packard is also fierce rival, having bought network equipment maker 3Com after Cisco's foray into HP's server territory. "Some are saying Cisco's margins are coming down because HP is being more aggressive," Trebnick added. Its shares were up 48 cents to $17.48 in early Nasdaq trading.
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