Even With Slight Stumble, Cisco's Strong Ethernet Switching Position Fuels My Confidence

Cisco (NASDAQ:CSCO) is one of those stocks that left a lot of investors broken hearts after the latest bull markets. The internet stock bubble hit Cisco shareholders particularly hard, as it was one of those stocks that had a P/E over 100 for quite a while.

Like many technology stocks at that time, earnings didn't have to be that impressive as long as fools were buying and greater fools were buying at higher prices. Looking back at the growth during that time, which for revenue and net income was above 10% at the beginning of the bubble, it was a good business model indicator, but not enough to justify the crazy valuations to follow. The 2009 bear market hit CSCO shareholders as well, but the losses were not nearly as destructive as in the early 2000s. You can attribute this difference to the difference in valuations.

Nowadays, the stock is trading at much more reasonable valuations. Growth, while not as pronounced as the early days, is still fairly reasonable and is moving towards a consistent long-term trend. CSCO was a stock I really liked back in February 2016, so I recommended it in The Sather Research eLetter and added it to the Real Money Portfolio of the eLetter. Since then, the stock has returned about 48.1% including dividends.

With a current 6-year streak of consecutively increasing the dividend and a growth rate of 24.7% over the last 3 years, the potential returns from dividends only add to the attractiveness of this stock - one that has been on a tear over the past couple of years. The dividend yield reached as high as 3.7% around the time I added the position, which combined with the recent dividend growth rate creates a very high potential yield on cost for the foreseeable future.

The current yield of 3.47% may attract more yield seeking investors moving forward, hopefully pushing up the stock higher as others wish to participate in the party.