Is Cisco Systems' Dividend Sustainable?

Networking giant Cisco Systems (NASDAQ:CSCO) has been a bit of an underperformer over the past year. The stock has fallen about 9% compared with the S&P 500, which has dropped 2%. Although the stock has struggled, the business performance has been better.

Over the 12 months ended in late January, when Cisco last reported earnings, the company has been able to grow revenue a little over 3% and take much more of that growth to the bottom line. Earnings per share grew nearly 22% over the same period. Return on equity came in at an impressive 17.3%.

The company's five-year performance hasn't been too shabby, either. Revenue and EPS have grown an annualized 4.2% and 5.6%, respectively. The stock has more or less mimicked the S&P 500's returns, increasing 50% over the past five years. It's not knock-it-out-of-the-ballpark performance, but the slow and steady progress has allowed the company to increase its annualized dividend from $0.12 per share in 2011 to $1.04 today.

An increasing dividend coupled with a falling stock price has resulted in a stock that is paying a 3.9% dividend yield as of this writing. While this may be impressive, it is also worrisome at first glance. As the dividend yield creeps up to 4%, it would be prudent to analyze if Cisco's payout is sustainable.

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