re: CSCO shareholders' resounding rejection of dividend payout,
IMHO, this isn't a strong vote for the elimination of the double taxation on dividends.
i agree. it's not surprising, when one considers that the vast majority of CSCO's "cash hoard" is not retained earnings, but proceeds from financing (e.g., options tax benefits and paid-in capital from options exercises).
these are not really reliable sources of "earnings" going forward, or at least relying on them to fund dividends is like taking money from your left pocket and sticking it in your right pocket.
meanwhile, the portion of CSCO's "cash hoard" which is retained earnings includes the heavy profits made in the bubble years, when CSCO was a prime beneficiary of bubble-related and non-recurring capex. how repeatable are those earnings?
it seems to me CSCO was lucky and got $20 billion or so by being in the right place at the right time. but i don't think they can do it again. (unlike, perhaps, MSFT or QCOM, which actually have profitable franchises that are not entirely dependent on stock bubbles.)
so while they could pay a "special dividend" of, say, 2 or maybe even 3 dollars a share, how are they going to repeat that? in the next decade, i believe it will be difficult absent a bubble which takes CSCO stock to over 120 (and maybe then Chambers will have achieved his goal of become the first trillion-dollar market cap company). color me skeptical on that one.
special dividends aside, CSCO would really have to pay their dividend based on the current earnings stream. i doubt they could pay much more than a few pennies a quarter if they keep the payout ratio reasonable. even if they pay 20 cents a year (which would be a very healthy payout ratio of 36% on next year's estimates, if i can try not to laugh and believe their pro forma earnings are real), and have $3 per share cash on the books, the dividend yield on the stock is a whopping 1.39%. going much higher on the payout ratio would not be very prudent, imo.
and a 1.39% dividend yield is hardly something to write home about.
so for people hoping to get other people to pay more for CSCO stock, i can understand why they wouldn't want to get too "real" with the dividend business. |
