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Cisco appears to be running out of money for stock buybacks

Ominously for shareholders, Cisco's share count has been growing quarterly.

Hummelstown, PA:   Sun, 8/18/13 - 11:59pm    View comments
 

Alarmingly for Cisco's shareholders, during FY13 Cisco spent the least amount of shareholder money ($2.8 billion) on repurchasing Cisco's stock, since its stock buyback program began 12-years ago.   So exactly why should Cisco's shareholders be alarmed?   Well, because RBC Capital Markets Managing Director Mark Sue made several interesting points last week:   "Cisco has historically used its share repurchase programs to reduce its diluted share-count to good effect, in addition to negating the impact of stock-based compensation related to RSA/RSU issuance. However, since the advent of the dividend, Cisco has decelerated the pace of its share buyback program.   "Considering that Cisco has to repurchase shares to negate the shareholder dilution related to stock-based compensation, we believe that Cisco may have limited room to service a dividend yield above the current 2.7% levels without further impacting its buyback program and diluted share-count, unless Cisco spends materially above the 50% of free cash flow levels.   "Cisco we believe will be a meaningful dividend payer but not increasingly a dividend grower if it were to try to actively offset its share-count increase."   Cisco's share count has been growing quarterly:

Year Dollar Amounts of Cisco Stock Buybacks by Fiscal Year 2014* $ 6.0 billion 2013 $ 2.8 billion 2012 $ 4.4 billion 2011 $ 6.791 billion 2010 $ 7.803 billion 2009 $ 3.600 billion 2008 $10.350 billion 2007 $ 7.781 billion 2006 $ 8.295 billion 2005 $10.200 billion 2004 $ 9.100 billion 2003 $ 6.000 billion 2002 $ 1.853 billion Total $ 84.9 billion *First 6-months of FY14 Source: U.S. Securities and Exchange Commission

Source: U.S. Securities and Exchange Commission
 

Cisco's Annual Stock Buybacks and Dividend Trends ($, M)

Cisco's Quarterly Stock Buybacks and Dividend Trends ($, M)

For the first time in 8-years, Cisco's diluted shares outstanding grew on an annual basis.

Cisco's Annual Diluted Shares Outstanding Trends (Units, M)

Drivers Behind Cisco's Diluted Shares Outstanding Trends (Units, M)

Sue continued, "To understand Cisco's ability to service its quarterly dividend of $0.17 (annual dividend of $0.68), while continuing its stock buyback program, we conducted a scenario analysis of the total cash that Cisco could potentially return to shareholders at various levels of dividend yield and annual share buyback. Investors should note that we're estimating ∼$12.5B in free cash flow in FY14 and that Cisco has indicated that it will return at least ∼50% of its free cash flow back to shareholders."

Scenario Analysis for Cisco's Annual Cash Returned to Shareholders ($, M)

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