Dividend Increase | Cisco Systems $CSCO #Dividend

Dividend | Dividend Growth | Financial Independence | Freedom | Passive Income
Getting a pay raise while sitting on the couch?  Sign me up!  Thanks Cisco for another dividend increase!

There's an old Chinese proverb that says "the best time to plant a tree was 20 years ago, the next best time is now".  The reason for this is that it takes time for a tree to grow and prosper and for you to start reaping its benefits.  Dividend growth investing is much the same way.  It takes consistent saving and investing as well as time and patience to let the power of dividend growth take hold.

That's why one of my favorite things is when one of the companies I own decides to pay out more in dividends.  You mean I get a pay raise just for owning a small piece of a company?  Not going and doing R&D for new products or technology.  Not selling any products.  Not managing any employees or inventory.  Not making sales calls.  All I had to do was have the foresight to invest some of my savings in excellent companies.  

On February 16th the Board of Directors at Cisco Systems (CSCO) approved an increase in the quarterly dividend payment.  The dividend was increased from $0.37 to $0.38 which is a discouraging 2.7% raise.  Cisco is a Dividend Contender with 11 consecutive years of dividend growth.  Shares currently yield 2.66% based on the new annualized payout.

The new dividend will be payable April 27th to shareholders of record as of April 6th.

Since I own 72.885 shares of Cisco in my FI Portfolio, this raise increased my forward 12-month dividends by $2.92.  This is the 3rd raise that I've received from Cisco since initiating a position in 2019 with total organic dividend growth coming in at 8.6%.

I also own 110.736 shares in my Rollover IRA and this raise increased my forward 12-month dividends for that portfolio by $4.43.

A full screen version of this chart can be found here.

Cisco only initiated a dividend starting in 2011 and dividend growth started off with a bang.  However, beginning with 2020 dividend growth has slowed significantly with three consecutive raises of just $0.01 per share per quarter.  That's definitely disappointing and something to monitor.

Cisco has given year over year dividend growth ranging from 2.0% to 45.1% with an average of 12.3% and a median of 9.3%.

There's been 9 rolling 3-year periods during Cisco's streak with annualized dividend growth ranging from 3.1% to 24.7% with an average of 12.7% and a median of 13.4%.

There's also been 7 rolling 5-year periods with annualized dividend growth ranging from 6.0% to 40.6% with an average of 16.8% and a median of 13.3%.

The 1-, 3-, 5-, and 10-year rolling dividend growth rates for Cisco Systems since 2011 can be found in the following chart.  

A full screen version of this chart can be found here.

For dividend yield theory I consider the fair value range to be the forward dividend yield +/- 10% compared to the 3-year moving average, the under/over value area to be to between 10%-20% deviation from the average and significant over/under value are greater than a 20% deviation from the average.

A full screen version of this chart can be found here.

Cisco' 3-year average forward dividend yield is 2.96% which corresponds to a share price of $51 based on the new annualized payout.  

I consider the fair value range based on dividend yield theory to be the 3-year moving average yield +/- 10%.  That gives a fair value range of $47 - $57 and suggests that shares are trading on the upper end of the fair value range.

Another quick and dirty valuation method is the Gordon Growth or Dividend Discount model.  This valuation method is based solely off the expected future dividends as well as your required return.  Based on a 10% discount rate and assuming Cisco can maintain 6.0% annual dividend growth shares are worth around $46 per share.

A full screen version of this chart can be found here.

At a 5.5% estimated dividend growth rate Cisco shares are worth around $36 per share.  With a 7.5% dividend growth rate shares are worth around $65 per share.

Wrap Up

This raise increased my forward dividends by $2.92 with zero effort on my part.  That's right, absolutely nothing to contribute to their operations.  Based on my FI Portfolio's current yield of 2.42% this raise is like I invested an extra $120 in capital.  Except that I didn't!  One of the companies I own just decided to send more cash my way. 

That's how you can eventually reach the crossover point where your dividends received exceed your expenses.  That's DIVIDEND GROWTH INVESTING AT WORK!  The beauty of the dividend growth investing strategy is that you build up your dividends through fresh capital investment as well dividend increases from the companies you own.

This is the 10th dividend increase I've received from the companies in my FI Portfolio increasing by forward 12-month dividends by $90.59 combined.

My FI Portfolio's forward-12 month dividends are $9,751.83  Including my FolioFirst portfolio's forward dividends of $179.34 brings my total taxable accounts dividends to $9,931.17.  My Roth IRA's forward 12-month dividends are $934.06.  My Rollover IRA's forward dividends are $4,052.11.  Across all accounts I can expect to receive $14,917.34 in dividends over the next year.

I've also started compiling dividend data on many of the companies that I own or would like to own.  Cisco Systems' can be found here which includes the dividend history (as far back as I can find without spending hours hunting it down), rolling dividend growth rates and dividend yield theory.  To see other companies that I've already gathered the data on you can check out the Dividend Companies page.  Check it out and let me know what you think.

Do you own shares of Cisco Systems?  If dividend growth slow markedly for a position, how long do you give until you consider selling your shares?

Please share your thoughts below.