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S&P 500   5,137.08
DOW   39,087.38
QQQ   445.61
Lawyers who successfully argued Musk pay package was illegal seek $5.6 billion in Tesla stock
Critical asset just had biggest fall on record (Ad)
Sports analytics may be outnumbered when it comes to artificial intelligence
Chicago 'mansion' tax to fund homeless services stuck in legal limbo while on the ballot
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
Norway's hospitalized king gets a pacemaker in Malaysia after falling ill during vacation
Head Start preschools aim to fight poverty, but their teachers struggle to make ends meet
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
What to watch for as China's major political meeting of the year gets underway
S&P 500   5,137.08
DOW   39,087.38
QQQ   445.61
Lawyers who successfully argued Musk pay package was illegal seek $5.6 billion in Tesla stock
Critical asset just had biggest fall on record (Ad)
Sports analytics may be outnumbered when it comes to artificial intelligence
Chicago 'mansion' tax to fund homeless services stuck in legal limbo while on the ballot
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
Norway's hospitalized king gets a pacemaker in Malaysia after falling ill during vacation
Head Start preschools aim to fight poverty, but their teachers struggle to make ends meet
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
What to watch for as China's major political meeting of the year gets underway
S&P 500   5,137.08
DOW   39,087.38
QQQ   445.61
Lawyers who successfully argued Musk pay package was illegal seek $5.6 billion in Tesla stock
Critical asset just had biggest fall on record (Ad)
Sports analytics may be outnumbered when it comes to artificial intelligence
Chicago 'mansion' tax to fund homeless services stuck in legal limbo while on the ballot
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
Norway's hospitalized king gets a pacemaker in Malaysia after falling ill during vacation
Head Start preschools aim to fight poverty, but their teachers struggle to make ends meet
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
What to watch for as China's major political meeting of the year gets underway

New price targets could erase Cisco's 3.1% dividend yield soon

Cisco systems stock price

Key Points

  • Cisco stock is set to become one of the market's favorite names after the newest FED announcement.
  • Lower interest rates could help this stock push higher, as others have done when offering attractive dividend yields.
  • Analysts boosted targets, offering double-digit upside; perhaps history will repeat itself.
  • 5 stocks we like better than Vanguard Real Estate ETF

A new FED has come into play to end 2023 with a major surprise for most investors out there trying to find a direction to bet on and the implications this new view has are plenty, but today, you will focus on how it affects one stock in particular. Because of where Cisco Systems NASDAQ: CSCO trades today, a new FED could send it to new highs very soon.

With up to six rate cuts proposed for 2024, a more accessible FED policy will begin to target specific areas of the economy, making markets shift their views more favorably for some stocks and unfavorably for others. The interest rate shift moves the yardstick against which stocks are measured, such as inflation and the ten-year government treasury yield.

Think of it: if a sector like real estate is offering a 3.6% dividend yield today, as measured by the Vanguard Real Estate ETF NYSEARCA: VNQ, do you think investors will see it as a competitive product when the ten-year treasury bond yield sits at 3.8%? Not really, but all that could change soon if the bond yields drop along with FED rate cuts.

The money shift is here

When breaking down the same comparison logic against the yield benchmark (the ten-year), you can devise a reliable filter of which stocks will become market favorites when and if the FED pulls the lever down on interest rates; here's a good example of that dynamic.


A stock like Simon Property Group NYSE: SPG, before its recent 37.0% rally in the past quarter, offered investors a near 7.5% dividend yield! Even back then, that rate beat the ten-year treasury yield, pushing it to its year-high rate of 5.0%. Why did the stock rally? Well, among many things, because its yield beat the benchmark!

Because the FED is about to cut rates, this benchmark could get a heck of a lot lower. Judging by how bond yields have declined recently from their 5.0% high to today's 3.8%, it could be the beginning of a new cheap money cycle.

Markets are forward-looking, meaning they are not going to sit around and wait for money to shift; they are shifting ahead into stocks that will make sense once the benchmark becomes low enough.

Considering that Cisco's price action not only makes it a cheap stock needing to catch up to the Technology Select Sector SPDR Fund NYSEARCA: XLK, given its underperformance of 50.8% during 2023, it is also primed to become a buy target for most investors when you look at its dividend yield today.

Time is up

A 3.1% dividend yield may not make Cisco stock as attractive as Simon Property Group was back in the day with its 7.5% yield. However, remember, it's not the absolute yield but rather the yield compared to the next best thing: The ten-year treasury yields.

Sure, 3.1% is still below the ten-year's 3.8%, but remember that the ten-year is set to fall once the FED kicks off its cutting season. Even if Cisco's dividend only matches or surpasses the ten-year dividend by a small amount, it would still justify plenty of investors to come and surround it with buy orders.

You want to know who else is getting behind this coming shift? Analysts. Namely, the number-crunching analysts at Bank of America NYSE: BAC boosting the stock's price target to $60.0 a share but even taking the consensus price target of $58.4 a share will give the company a nice 15.5% upside from today's prices.

Even if the move takes longer than expected, you can't deny the powerful trends that can come from the company's financials alone. Namely, Cisco's ROIC (return on invested capital), which comes at an 18.0% five-year average, can be a second benchmark on which to base your analysis.

You see, the long-term ROIC rate will usually act as a magnet, which the annual stock price performance will begin to match. Which is why lower rates can be the spark to light a fire, but Cisco has prepared by building a solid chimney first. 

There are two schools of strategy in this stock as a potential investment. First, you can beat inflation and potentially beat the ten-year yields with today's dividend offered, not to mention a double-digit upside.

Second, you can take the long view and sit comfortably on that average ROIC rate, which can act as a wealth multiplier given enough time for markets to do their thing and work their magic on the stock price.

→ Critical asset just had biggest fall on record (From Stansberry Research) (Ad)

Should you invest $1,000 in Vanguard Real Estate ETF right now?

Before you consider Vanguard Real Estate ETF, you'll want to hear this.

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Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Bank of America (BAC)
4.6052 of 5 stars
$34.35-0.5%2.79%11.19Moderate Buy$35.53
Simon Property Group (SPG)
4.4308 of 5 stars
$150.44+1.6%5.18%21.55Moderate Buy$139.33
Cisco Systems (CSCO)
4.9005 of 5 stars
$48.40+0.1%3.22%14.71Hold$56.36
Technology Select Sector SPDR Fund (XLK)N/A$210.76+1.8%0.61%20.04HoldN/A
Vanguard Real Estate ETF (VNQ)N/A$86.57+1.2%3.73%28.40N/AN/A
Compare These Stocks  Add These Stocks to My Watchlist 

Gabriel Osorio-Mazilli

About Gabriel Osorio-Mazilli

  • gosoriomazzilli@gmail.com

Contributing Author

Value Stocks, Asian Markets, Macro Economics

Experience

Gabriel Osorio-Mazilli has been a contributing writer for MarketBeat since 2023.

Areas of Expertise

Value investing, long/short trading, options, emerging markets

Education

CFA Level I candidate; Goldman Sachs corporate training; independent courses

Past Experience

Analyst at Goldman Sachs, associate at Citigroup, senior financial analyst in real estate


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