Analyzing the Dividend Curves of General Electric and Cisco Systems

In this part of the series, we’ll take a look at General Electric and Cisco Systems. General Electric’s (GE) revenue fell 7.0% in the first half of 2017, driven by energy connections and lighting, followed by oil and gas, transportation, and GE Capital. The 33.0% fall in EPS (earnings per share) for the same period was driven by the same segments.

In fiscal 2016, GE’s 5.0% rise in revenue was driven by power, renewable energy, aviation, healthcare, and GE Capital, partially offset by oil and gas, transportation, and energy connections and lighting. Unlike 2015, EPS in fiscal 2016 ended up in positive territory, driven by the 2016 revenue drivers. General Electric paid off 0.93% of its earnings as dividends in 2016 compared to 5.4% in 2015. It has paid off 2.4% and 1.6% of its earnings as dividends in 1Q17 and 2Q17, respectively.

General Electric has recorded consistent growth in its dividend payment since October 2010. However, it kept the dividend rate unchanged between January 2015 and October 2016. The company was unable to generate enough free cash flow to honor its dividend commitments for 1Q17 and 2016. Not only has it maintained a good cash and short-term investment position over the years, but it has also managed to make it grow. General Electric’s debt-to-equity ratio has fallen over the years.

Cisco Systems’ (CSCO) revenues for the first nine months of 2017 fell 2.0%, driven by a fall in product revenues and partially offset by service revenues for 1Q17 and 2Q17. Its service revenue fell in 3Q17, partially offset by product revenue. The America and EMEA (Europe, the Middle East, and Africa) regions recorded flat revenues, while the APJC (Asia Pacific, Japan, and Greater China) region fell. Product revenue growth was driven by wireless and security. In the first two quarters, EPS fell unlike in the third quarter. EPS for the first nine months of 2017 has fallen 9.0%, driven by lower revenue and operating income and higher interest expense. Of the three quarters in 2017, Cisco Systems managed to raise its EPS only in 3Q17.

Revenue for fiscal 2016 remained almost flat, driven by growth in service revenue. After excluding the divestiture of its service provider video CPE (customer premises equipment) business, the company reported revenues growth in the Americas, EMEA, and APJC regions. The 20.0% rise in EPS was driven by growth in operating income and lower shares outstanding. Cisco paid off 0.45% of its earnings as dividends in 2016 compared to 0.46% in 2015. It has paid off 0.57%, 0.55%, and 0.58% of its earnings as dividends in 1Q17, 2Q17, and 3Q17, respectively.

Cisco has recorded consistent growth in its dividend payment since February 2012. It has not only managed to maintain a strong free cash flow position, but it has also managed to grow it. It has maintained a holistic debt-to-equity ratio and has a strong cash and short-term investment position.

The Vanguard High Dividend Yield ETF (VYM) offers a dividend yield of 2.9% at a PE (price-to-earnings) ratio of 21.9x. It has the highest exposure to the technology sector, followed by the consumer non-cyclical and financials sectors. The iShares International Select Dividend (IDV) offers a dividend yield of 4.2% at a PE ratio of 17.2x. It has the highest exposure to the financials sector.