Cisco Bondholders OK with Dividend

Networking company’s debt has moved in line with other bonds since the increase in its payout was announced.

Bondholders are giving Cisco Systems Inc. a free pass on its plan to reward shareholders with half its free cash flow this year as the biggest maker of computer-networking equipment cuts prices and jobs to increase profit.

Cisco’s bonds are trading at levels that imply it should be rated Aa2, according to Moody’s Corp.’s capital markets research group, two levels above its actual rating of A1. Cisco’s fourth-quarter results beat analysts’ estimates, and executives said this week that the company will raise its dividend 75 percent as part of a plan to reward shareholders with at least half the cash generated from operations.

Domestic Cash

Cisco, a beneficiary of the growth in data that needs to be shuttled among servers, mobile phones, search engines and video websites, reported profit Aug. 15, excluding some costs, of 47 cents a share. That compared with the average estimate of 46 cents in a Bloomberg survey for the fourth quarter, which ended July 28. 

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