Cisco stock resets dividend payout as AI moat widens

Cisco Systemsrecently raised its quarterly dividend by a penny to $0.42 per share, signaling confidence in its growing role within the AI infrastructure buildout.

The move came as the Dow Jones 30 stock posted record revenue and guided fiscal 2026 to be its strongest year (ending in July) to date.

But Cisco (CSCO) stock dropped almost 12% following its quarterly results, even as its Q2 earnings surpassed consensus estimates. The market’s reaction centered on gross margin pressure and guidance that met only current-quarter estimates.

However, Cisco is positioned at the center of a once-in-a-generation technology shift, with hyperscalers ordering billions of dollars in networking equipment and optics to power AI data centers.

The dividend increase to $0.42 per quarter represents Cisco’s commitment to returning at least half of free cash flow to shareholders annually.

The networking giant returned $3 billion to shareholders in the second quarter through dividends and buybacks.

Given an annualized dividend payout of $1.68 per share, Cisco offers a forward yield of 2.2%.

According to data from Fiscal.ai, Cisco has increased its annual payout from $0.24 per share in 2011. Over the past 15 years, its dividend has grown at a 13.9% compound annual growth rate.

Cisco’s annual dividend expense is around $6.63 billion, while its free cash flow is projected at $13.64 billion in fiscal 2026, indicating a payout ratio of 48.60%.

Analysts forecast FCF to expand to over $19 billion by fiscal 2030, which should support future dividend hikes.

• Quarterly dividend: $0.42 per share (up from $0.41)

• Annual dividend: $1.68 per share

• Dividend yield: Approximately 2.2% (based on recent stock price)

• Payout ratio: Roughly 49% of FCF

• Free cash flow return: Minimum 50% annual commitment

• Q2 capital returns: $3 billion ($1.6 billion dividend, $1.4 billion buybacks)

• Year-to-date returns: $6.6 billion

• Remaining buyback authorization: $10.8 billion

Cisco’s second quarter of fiscal 2026 delivered results that few networking companies can match right now. Revenue jumped 10% year over year (YoY) to $15.3 billion, while earnings per share (EPS) climbed 11% to $1.04.

The company now expects to take AI infrastructure orders exceeding $5 billion in fiscal 2026, up from a prior estimate of roughly $4 billion. During the quarter alone, hyperscalers ordered $2.1 billion in AI gear — matching the entire fiscal 2025 total.

CEO Chuck Robbins told analysts the company shipped its one-millionth Silicon One chip during the quarter. The custom silicon powers both data-center switches and long-haul routing systems that connect AI clusters across hundreds of kilometers.

Robbins stated:

The company’s Acacia unit, which makes optical components, posted its strongest quarter to date with triple-digit bookings growth. All major hyperscalers are deploying their coherent pluggable optics for data center interconnect.

Beyond the hyperscaler market, Cisco is building a pipeline with neocloud providers, sovereign cloud operators, and enterprise customers.

The company took $350 million in AI orders from these segments in the second quarter and has a pipeline exceeding $2.5 billion.

The elephant in the room is gross margin. Cisco’s non-GAAP product gross marginfell 130 basis points YoY to 66.4%, pressured by unfavorable product mix and rising memory costs.

Memory prices have surged across the industry due to demand for AI accelerators. CFO Mark Patterson said the company is taking three steps to manage the situation: implementing price increases, revising contracts with channel partners, and using its scale to secure favorable supply terms.

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“Do I think customers will try to buy ahead in some cases? Perhaps,” Robbins said. “But I don’t think it’s going to be a big trend in the networking side of our business.”

Cisco’s networking products contain less memory than computer systems, making the price impact modest.

Patterson noted that advance purchase commitments over the past 90 days rose 73% year over year to $1.8 billion, primarily driven by memory.

Morgan Stanley analyst Meta Marshall maintains an “overweight” rating on the stock, Seeking Alpha noted. In an investor note, Marshall noted that Cisco’s AI story, campus networking refresh cycle, and potential for margin leverage outweigh the near-term gross margin concerns.

The analyst expects memory headwinds to ease as pricing actions take effect.

While AI grabs headlines, Cisco’s bread-and-butter enterprise networking business is accelerating. Networking product orders grew more than 20% in the quarter, marking the sixth straight quarter of double-digit growth.

• Campus switching, wireless, and industrial IoT products are all ramping faster than previous product generations.

• Cisco sits at the beginning of a multiyear, multibillion-dollar refresh opportunity as customers upgrade aging Catalyst switch infrastructure.

• Enterprise product orders grew 8% YoY, with strength across the entire portfolio.

• Public sector orders jumped 11%, while service provider and cloud customer orders surged 65%.

The company’s WiFi 7 products grew 80% sequentially. Campus switching orders climbed close to double digits.

Industrial IoT has now posted double-digit growth for seven consecutive quarters, driven by onshoring in manufacturing and AI workloads at the network edge.

Robbins emphasized that legacy infrastructure wasn’t designed for AI’s performance, speed, and security requirements.

As companies deploy agentic AI applications, network latency and security architectures must evolve.

For fiscal 2026, Cisco expects revenue between $61.2 billion and $61.7 billion, implying 8.5% growth. Analysts project the adjusted earnings to grow by 10% annually through fiscal 2030.

The company generated $1.8 billion in operating cash flow during the quarter, down 19% due to a final $2.3 billion transition tax payment, and continued investments to meet demand for AI infrastructure.

Patterson noted that while Splunk’s shift from on-premise to cloud subscriptions is creating a revenue headwind, the transition enables faster innovation delivery and better customer adoption.

The security unit added 500 new logos in the first half and remains on track for 1,000 new customers this fiscal year.

Analysts remain bullish on CSCO stock. Out of the 12 analysts covering Cisco, nine recommend “buy,” and three recommend “hold”. The average Cisco stock price target is $92, implying an upside of more than 19% from current levels.

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This story was originally published by TheStreet on Feb 15, 2026, where it first appeared in the Investing section. Add TheStreet as a Preferred Source by clicking here.