This Company Could Pay a 55% Dividend Yield

One of the biggest tech companies on the planet could pay an enormous dividend.

Right now, this company holds over $48 billion in cash on its books. To put that into perspective, that's enough money to pay every person in America $153.

Or look at this way...

With a current share price of $17, this company has enough cash to pay investors a one-time dividend equal to a 55% yield.

I'll admit, it's highly unlikely this company would shell out all its cash for a special dividend. But it does help prove just how successful this company is.

Yet most investors ignore this stock...

It's not exciting enough for them. They'll dismiss it as another "boring" blue-chip with no potential for future growth.

That couldn't be further from the truth...

The stock I'm talking about is Cisco (Nasdaq: CSCO), one of the market's best-known stocks. It's a Dow component with a $90 billion market cap.

For most investors, the sheer size of the company marks a "red-flag", because it's too big. They believe you need to go "where the action is" in order to make money in the stock market. They say they have to invest in small, unproven companies to make significant returns.

To me, that's a huge mistake...

See, I've been actively investing for over a decade. And during this time, I've found that the best way to get wealthy in the stock market is by owning companies that dominate their markets, are essential to our way of life, and that continually reward their shareholders with cash.

Cisco is a perfect example of one of these companies.

With over 67% of the market share for specialized networking equipment, Cisco is by far the largest player in its industry.... chances are, the computer you're reading this article on is connected to a Cisco router.

That market dominance gives Cisco a huge competitive advantage. It's what Warren Buffett would call a wide "economic moat." Any competitor that tries to compete with Cisco is going to find it difficult (if not impossible) to penetrate Cisco's expansive market share.

Meanwhile, Cisco is literally giving billions of dollars back to shareholders.

Since 2001, the company has bought back more than 3.6 billion shares of its own stock -- reducing the shares outstanding by more than 25%.

And just last year Cisco announced it would be paying investors a dividend. Right now, that dividend stands at $0.08 a quarter, for a current yield of 1.9%. But the company just increased its dividend 33% a few months ago. And with over $48 billion in its cash on its books, the company has plenty of room for more dividend increases for years to come.

All of these moves are making each share of the stock more valuable, but the price hasn't followed suit...

Right now the shares trade at $17. That's the same level they traded at back in late 2005. But take a look at just how much more valuable each share of Cisco is compared to back then:

As you can see, Cisco's earnings per share have grown 78%, and the company has increased its cash by a staggering 720%. But despite a clear increase in the company's underlying value, the stock price trades around the same valuation it did 7 years ago.

This disconnection between Cisco's share price and its recent financial performance can't last forever. Eventually, the investing community will see just how valuable this company really is. And when they do, investors that bought today stand to make a lot of money.

How high do I think the stock could go in the coming year or two?

Well... given Cisco's dominant market position and strong profitability, I think the stock should be trading at an enterprise value / operating cash flow ratio of at least 10. That would put the share price at about $33... or nearly 100% higher than today's levels.

[Note: Cisco shares all the traits of what I like to call "Forever" stocks. These are stocks that I think you can buy today and basically hold for the rest of your life. You can view my research on the "Forever" stocks here. I've even included the names and ticker symbols of some of my other "Forever " ideas -- including one stock that holds over $150 per share in cash on its books (and it's not Apple). Click here to watch.]

Good Investing!

Paul Tracy
StreetAuthority Co-founder, Chief Investment Strategist -- Top Ten Stocks

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Disclosure: StreetAuthority owns CSCO as part of the company's various "real-money" portfolios. In accordance with company policies, StreetAuthority always provides readers with at least 48 hours advance notice before buying or selling any securities in any "real money" model portfolio. Members of our staff are restricted from buying or selling any securities for two weeks after being featured in our advisories or on our website, as monitored by our compliance officer.