After backing out the cash Cisco Systems, Inc. (NASDAQ:CSCO) is trading at about 7.5 times the free cash flow, which for a dominant company like Cisco seems crazy. Returning profits to shareholders The new dividend will require Cisco to pay out about $3.6 billion per year in dividends. This is only about a third of the company's free cash flow, so even if profits remain flat or shrink the dividend can be raised significantly. Cisco also buys back a lot of shares, with $4.7 billion spent doing this in fiscal 2012. Some of this offsets the dilution due to stock-based compensation, but the diluted float has been reduced by 25% since 2003. Cisco could raise the dividend by 10% per year for the next 10 years and still be paying out less than the current free cash flow.