Cisco to pay first-ever quarterly dividend

NEW YORK Fri Mar 18, 2011 1:26pm EDT

A pedestrian walks past the Cisco logo at the technology company's campus in San Jose, California February 3, 2010. REUTERS/Robert Galbraith

A pedestrian walks past the Cisco logo at the technology company's campus in San Jose, California February 3, 2010.

Credit: Reuters/Robert Galbraith

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NEW YORK (Reuters) - Top network equipment maker Cisco Systems Inc plans to pay a dividend for the first time, helping appease investors' concerns about slowing growth by returning more of its ample cash hoard.

The quarterly payment of 6 cents per share, a 1.4 percent yield, was in line with what most analysts expected after Cisco promised last September to pay a 1-2 percent yield.

The first dividend, to be paid April 20, was a rare bit of good news for investors who have been disappointed by Cisco's weak outlook and low margins in recent quarters. The shares were up 1.5 percent at $17.26 by midday.

The move also helps broaden Cisco's investor base beyond technology and growth funds, analysts said.

"This gives Cisco another class of investors to bring into the stock who are more interested in a dividend payout, rather than high growth," said Avian Securities analyst Catharine Trebnick.

Cisco, along with Apple Inc and Google Inc, had been one of the few remaining cash-rich tech companies to resist dividend payments, prioritizing share repurchases and growth through acquisitions.

But with a maturing business, investors had begun demanding regular dividends from Cisco, which ended last quarter with more than $40 billion in cash. Microsoft Corp began paying dividends in 2003 and has since been raising them.

"It's a natural progression of the tech space as the industry becomes more mature and you're starting to see multiple ways for companies like Cisco to enhance shareholder value," said Pacific Crest Securities analyst Brent Bracelin.

Wall Street has been expecting a rebound in dividend payments this year as companies that have been sitting on cash decide to reward shareholders as the economy improves.

Cisco shares have fallen around 35 percent over the past 12 months on worries about slowing growth and falling margins amid increasing competition.

In addition to rivals such as Juniper Networks Inc and China's Huawei Technologies, Cisco now faces tough pressure from new competitors like Hewlett-Packard Co. HP, a one-time sales partner, bought network equipment maker 3Com after Cisco's foray into HP's server territory.

(Reporting by Ritsuko Ando and Liana B. Baker; editing by John Wallace, Derek Caney and Matthew Lewis)

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