Cisco (CSCO, Financial) has been a favorite of dividend growth investors over the last decade. The stock has been moving higher consistently and it looks likes its growth can continue in the future as well.
In the most recent quarter, Cisco shared earnings per share of 63 cents, beating the estimates by three cents. On the other hand, the company’s revenue came in at $12.64 billion, $70 million greater than the estimates. Apart from beating estimates on both fronts, the company’s balance sheet also improved considerably as it now has $37 billion in net cash as well as a long-lasting competitive benefit in its primary switching and routing markets.
Moving onward, the company also brags growth businesses, such as security and collaboration, will boost top-line as well as bottom-line in the imminent years.
Most significantly, the company is putting in a lot of effort to transform its business from hardware to software. The company’s security business is escalating at a rapid pace, displaying 16% growth throughout the fourth quarter. Furthermore, collaboration, which comprises numerous things such as video conferencing equipment, has turned out to be the third largest segment for the company.
According to the latest quarter results, switches and routers still account for approximately 45% of the company’s overall revenue, but the company is trying to move away from those slow growth segments.
There were several issues which have negatively impacted the company’s data center business, but the company detailed that the shifting enterprise workloads were the primary reason to fester revenue generated from the data center segment.
To overcome that problem, Cisco has made a smart move by introducing HyperFlex, which shows the company’s entry into the hyper-converged infrastructure market. As per Gartner estimates, HyperFlex is projected to produce $2 billion in revenue in 2016 and $5 billion in revenue in 2019.
All these clearly suggest that the company is aggressively moving its business in the direction of software, and its next-generation data center products validate that shift.
Moreover, the company also detailed that its HyperFlex is performing very well with more than 500 customers by the end of the most recent quarter, roughly one fourth of those customers are new to Cisco’s line of services.
Final words
Cisco looks like a good bet for long-term investors. Not only does the company have a good dividend offering, it is also diversifying its business to other high growth markets, which should boost its sales going forward. Although switches and routes are still key to Cisco, I think that trend will change rapidly in the near future, making the stock a great pick.
Disclosure: No position.
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