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Inside Juniper’s Capital Returns

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50% of free cash going back to shareholders

Juniper Networks (JNPR) has committed to returning 50% of its free cash flow to shareholders through dividend distributions and share repurchases this year. In 1Q17, the company declared a quarterly cash dividend of $0.10, which it said will be released to shareholders on June 22, 2017.

During 1Q17, Juniper returned $163 million to its shareholders, with $38.0 million being distributed as dividends and $125.0 million distributed as share repurchases. In the two-year period between 2014 and 2016, the company returned $4.1 billion to shareholders in dividends and share buybacks.

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Healthy cash flow streaming from operations

While Juniper has kept its dividends flowing for years, they don’t compare favorably with those of its industry peer Cisco (CSCO). Juniper’s dividend yield is just about half of Cisco’s, yet Juniper is growing faster than Cisco as it continues to take market share from the competition in key markets such as cloud computing.

Juniper’s healthy growth can partly be explained by its strong cash flow from operations. In the recently concluded quarter, it squeezed $545 million in cash flow from operations, up from $335 million in the previous quarter and $172 million in the previous year’s quarter, as illustrated in the chart above.

Why isn’t management rapidly boosting dividends?

When Juniper’s management was asked to address the company’s dividend yield discrepancy, chief financial officer Ken Miller suggested that Juniper was trying to be prudent with its capital return program, hinting that future payouts would be better as financial performance improved. For now, Juniper’s shareholders should be content with 50% of free cash flow being sent back to them.

As for the future, the company stands to benefit from cloud computing infrastructure build-outs by the likes of Amazon (AMZN), Microsoft (MSFT), and Oracle (ORCL).

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