Cisco Programslately raised its quarterly dividend by a penny to $0.42 per share, signaling confidence in its rising position throughout the AI infrastructure buildout.
The transfer got here because the Dow Jones 30 inventory posted report income and guided fiscal 2026 to be its strongest yr (ending in July) so far.
However Cisco (CSCO) inventory dropped nearly 12% following its quarterly outcomes, whilst its Q2 earnings surpassed consensus estimates. The market’s response centered on gross margin stress and steering that met solely current-quarter estimates.
Nevertheless, Cisco is positioned on the middle of a once-in-a-generation know-how shift, with hyperscalers ordering billions of {dollars} in networking tools and optics to energy AI knowledge facilities.
Cisco is bullish on AI demand.
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Does Cisco inventory have a sustainable dividend payout?
The dividend improve to $0.42 per quarter represents Cisco’s dedication to returning a minimum of half of free money move to shareholders yearly.
The networking large returned $3 billion to shareholders within the second quarter by way of dividends and buybacks.
Given an annualized dividend payout of $1.68 per share, Cisco affords a ahead yield of two.2%.
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In keeping with knowledge from Fiscal.ai, Cisco has elevated its annual payout from $0.24 per share in 2011. Over the previous 15 years, its dividend has grown at a 13.9% compound annual development charge.
Cisco’s annual dividend expense is round $6.63 billion, whereas its free money move is projected at $13.64 billion in fiscal 2026, indicating a payout ratio of 48.60%.
Analysts forecast FCF to increase to over $19 billion by fiscal 2030, which ought to help future dividend hikes.
Key Cisco inventory dividend metrics:
- Quarterly dividend: $0.42 per share (up from $0.41)
- Annual dividend: $1.68 per share
- Dividend yield: Roughly 2.2% (based mostly on current inventory value)
- Payout ratio: Roughly 49% of FCF
- Free money move return: Minimal 50% annual dedication
- Q2 capital returns: $3 billion ($1.6 billion dividend, $1.4 billion buybacks)
- Yr-to-date returns: $6.6 billion
- Remaining buyback authorization: $10.8 billion
Cisco’s AI infrastructure orders surge
Cisco’s second quarter of fiscal 2026 delivered outcomes that few networking corporations can match proper now. Income jumped 10% yr over yr (YoY) to $15.3 billion, whereas earnings per share (EPS) climbed 11% to $1.04.
The corporate now expects to take AI infrastructure orders exceeding $5 billion in fiscal 2026, up from a previous estimate of roughly $4 billion. In the course of the quarter alone, hyperscalers ordered $2.1 billion in AI gear — matching your complete fiscal 2025 complete.
CEO Chuck Robbins advised analysts the corporate shipped its one-millionth Silicon One chip through the quarter. The customized silicon powers each data-center switches and long-haul routing techniques that join AI clusters throughout a whole lot of kilometers.
Robbins said:
The corporate’s Acacia unit, which makes optical elements, posted its strongest quarter so far with triple-digit bookings development. All main hyperscalers are deploying their coherent pluggable optics for knowledge middle interconnect.
Past the hyperscaler market, Cisco is constructing a pipeline with neocloud suppliers, sovereign cloud operators, and enterprise prospects.
The corporate took $350 million in AI orders from these segments within the second quarter and has a pipeline exceeding $2.5 billion.
Reminiscence costs create margin headwind
The elephant within the room is gross margin. Cisco’s non-GAAP product gross marginfell 130 foundation factors YoY to 66.4%, pressured by unfavorable product combine and rising reminiscence prices.
Reminiscence costs have surged throughout the business on account of demand for AI accelerators. CFO Mark Patterson mentioned the corporate is taking three steps to handle the scenario: implementing value will increase, revising contracts with channel companions, and utilizing its scale to safe favorable provide phrases.
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“Do I think customers will try to buy ahead in some cases? Perhaps,” Robbins mentioned. “But I don’t think it’s going to be a big trend in the networking side of our business.”
Cisco’s networking merchandise comprise much less reminiscence than pc techniques, making the value affect modest.
Patterson famous that advance buy commitments over the previous 90 days rose 73% yr over yr to $1.8 billion, primarily pushed by reminiscence.
Morgan Stanley analyst Meta Marshall maintains an “overweight” score on the inventory, In search of Alpha famous. In an investor observe, Marshall famous that Cisco’s AI story, campus networking refresh cycle, and potential for margin leverage outweigh the near-term gross margin issues.
The analyst expects reminiscence headwinds to ease as pricing actions take impact.
Campus networking refresh drives core enterprise development
Whereas AI grabs headlines, Cisco’s bread-and-butter enterprise networking enterprise is accelerating. Networking product orders grew greater than 20% within the quarter, marking the sixth straight quarter of double-digit development.
- Campus switching, wi-fi, and industrial IoT merchandise are all ramping sooner than earlier product generations.
- Cisco sits originally of a multiyear, multibillion-dollar refresh alternative as prospects improve growing old Catalyst change infrastructure.
- Enterprise product orders grew 8% YoY, with power throughout your complete portfolio.
- Public sector orders jumped 11%, whereas service supplier and cloud buyer orders surged 65%.
The corporate’s WiFi 7 merchandise grew 80% sequentially. Campus switching orders climbed near double digits.
Industrial IoT has now posted double-digit development for seven consecutive quarters, pushed by onshoring in manufacturing and AI workloads on the community edge.
Robbins emphasised that legacy infrastructure wasn’t designed for AI’s efficiency, velocity, and safety necessities.
As corporations deploy agentic AI functions, community latency and safety architectures should evolve.
What subsequent for Cisco inventory buyers?
For fiscal 2026, Cisco expects income between $61.2 billion and $61.7 billion, implying 8.5% development. Analysts mission the adjusted earnings to develop by 10% yearly by way of fiscal 2030.
The corporate generated $1.8 billion in working money move through the quarter, down 19% on account of a remaining $2.3 billion transition tax fee, and continued investments to satisfy demand for AI infrastructure.
Patterson famous that whereas Splunk’s shift from on-premise to cloud subscriptions is making a income headwind, the transition permits sooner innovation supply and higher buyer adoption.
The safety unit added 500 new logos within the first half and stays on observe for 1,000 new prospects this fiscal yr.
Analysts stay bullish on CSCO inventory. Out of the 12 analysts overlaying Cisco, 9 advocate “buy,” and three advocate “hold”. The common Cisco inventory value goal is $92, implying an upside of greater than 19% from present ranges.
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