Cisco stock resets dividend payout as AI moat widens

Core Insights - Cisco Systems raised its quarterly dividend to $0.42 per share, reflecting confidence in its role in AI infrastructure development [1] - Despite surpassing Q2 earnings estimates, Cisco's stock dropped nearly 12% due to gross margin pressure and guidance that only met current-quarter estimates [2] - Cisco is positioned to benefit from a significant technology shift, with hyperscalers ordering billions in networking equipment for AI data centers [2] Dividend Metrics - The increase in the quarterly dividend to $0.42 represents a commitment to return at least 50% of free cash flow to shareholders annually [3] - Cisco returned $3 billion to shareholders in Q2 through dividends and buybacks, with an annualized dividend payout of $1.68 per share, resulting in a forward yield of 2.2% [3][7] - Cisco's annual dividend expense is approximately $6.63 billion, with projected free cash flow of $13.64 billion in fiscal 2026, indicating a payout ratio of 48.60% [4] Financial Performance - In Q2 of fiscal 2026, Cisco's revenue increased by 10% year-over-year to $15.3 billion, and earnings per share rose by 11% to $1.04 [8] - The company expects AI infrastructure orders to exceed $5 billion in fiscal 2026, up from a previous estimate of $4 billion, with hyperscalers ordering $2.1 billion in AI gear during the quarter [8] - Cisco's capital returns in Q2 amounted to $3 billion, with $1.6 billion in dividends and $1.4 billion in buybacks, and year-to-date returns totaling $6.6 billion [9]