Cisco expects to start paying a dividend

U.S. technology giants seem to be heeding Wall Street pressure to funnel some of their stockpiled cash to shareholders.

Computer networking titan Cisco Systems Inc. said Tuesday that it expected to start paying a dividend for the first time. Cisco’s shares jumped as much as 4% on the news before falling back as a rally in the overall market faded. The stock closed at $21.45, up 19 cents, or 0.9%.

The announcement came a day after a news report said Microsoft Corp. was considering borrowing in the bond market to fund new stock buybacks and a dividend increase. That helped send Microsoft shares up 5.3% on Monday.

Stock buybacks have long been the tech industry’s favorite use of excess cash. But with many investors starved for income as interest rates have plunged over the last two years, rising dividends have the potential to help fill the gap.

Silicon Valley has plenty of cash on hand. Cisco held nearly $40 billion in cash and short-term securities as of July 31. Microsoft’s stash at midyear was nearly $37 billion.

Cisco Chief Executive John Chambers, speaking at an analyst conference in San Jose on Tuesday, said the company decided to initiate a dividend in the current fiscal year, which ends next July.

He said Cisco was looking at providing a dividend yield — a company’s annual payout to shareholders divided by the stock’s price —- of 1% to 2%.

Among other tech titans, Oracle Corp.’s current dividend yield is 0.8%, Hewlett-Packard Co.’s is 0.8%, Microsoft’s is 2.1% and Intel Corp.’s is 3.4%. Other Silicon Valley giants, including Apple Inc. and EBay Inc., have resisted paying dividends.

For many companies lately the dividend issue has been clouded by uncertainty over federal tax policy. Dividends now are taxed at a maximum rate of 15%. But they’ll be taxed at ordinary income tax rates starting Jan. 1 unless Congress extends the Bush administration’s expiring 2001 and 2003 tax cuts.

Cisco indicated that its dividend decision would depend on what happens with the tax rate and also on whether the government changes its policy on repatriation of cash that U.S. firms hold abroad. As the law now stands companies must pay corporate income tax on money they bring back to the U.S.

Microsoft is considering borrowing via bonds to fund a bigger dividend rather than repatriate funds and take that tax hit, according to Bloomberg News.

tom.petruno@latimes.com