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Owning shares of Cisco Systems Inc. (NASDAQ:CSCO) have recently been a lucrative holding, but this could just be the beginning.

Shares of the tech giant have soared nearly 20% over the past year. The stock closed the trading session Friday at nearly $33.00 each, closing in on a 10-year high.

Some might be tempted to ring the register. And while it’s never a bad idea to take a little money off the table, this top dividend stock could have a lot more upside ahead. I see three catalysts that could lift shares.

This Could Send Cisco Stock Higher

First, Cisco is the ultimate ‘picks and shovels’ play on the emerging Internet of Things (IoT).

The idea simply means owning companies that supply vital tools and services to a booming industry. The term comes from the success of suppliers during the California goldrush. They provided a far surer, safer bet for building wealth than trying to strike it rich on the next big find.

Cisco could be the best picks and shovels play on the IoT. Gartner says there will be some 8.4 billion connected devices by the end of the year, up 31% from the end of 2016. IoT growth should continue at that pace until at least 2020, at which time there will be just over 20.4 billion devices.

The press is focusing on consumer uses, like scales that can tweet your weight. The real opportunity, though, will be on the commercial side. Corporations can use millions of connected devices to cut costs, improve safety, and increase sales. Storing, analyzing, and deriving insights from all of this data will require serious computing power.

This is where Cisco comes into play. Last year, the company spent $1.4 billion to acquire Jasper Technologies. The firm’s SaaS platform helps users analyze, track, and gain insights from all of their growing IoT devices.

And the market here could be huge. For instance, analysts predict that

  • Total annual revenues for IoT vendors could hit $470 billion by 2020.

  • Spending in the Industrial IoT could top $60 trillion over the next 15 years.

  • The total IoT market size could is expected to grow at a 32.6% compounded annual rate through 2020.

Cisco is well positioned to lead this revolution. With its recent Jasper acquisition, the company is now one of the two leading IoT connectivity vendors. In one shot, Cisco quickly acquires a huge customer base and over 40 million connected devices.

If Cisco can capture even a fraction of this market, it could really move the needle for the tech giant. According to numbers compiled by Reuters, analysts project the company to grow earnings per share by 10% annually over the next five years. That provides a nice tailwind for the stock price.

Second, a Trump tax holiday could provide a quick jolt for shares.

Today, Cisco is sitting on over $71.8 billion in cash. Most of this money, however, is trapped overseas. Management could repatriate these holdings, but it would trigger a big tax bill.

Trump might change that. On the campaign trail, the President proposed a tax holiday, whereby corporations would only have to pay a 10% levy on cash holdings brought home from overseas. If passed, the measure would save Cisco $15.1 billion.

Any tax measure would be a big catalyst for Cisco stock. Some of the upside has likely already been priced in. But using some back of the envelope calculations, total tax savings would add up to 15% to the company’s market capitalization.

Finally, we’re being well paid to wait.

Last month, Cisco hiked its quarterly dividend to $0.29 per share. That brought the total annual yield to 3.5%.

In addition, the company is buying back stock hand over fist. Over the past four years, management has reduced the total number of shares outstanding by nearly 10%. That’s like a tax-free dividend, increasing our stake in a wonderful business. If you were to add together dividends and share buybacks, the total yield on Cisco stock jumped to 5.6%.

Of course, Cisco isn’t a sure thing.

Some of the Trump tax holiday has likely already been priced into the stock price. If the President can’t deliver (a real possibly following the failure of his health care bill), shares could take a hit.

That said, I’m not a fan of the ‘legislative momentum’ concept. Republicans have never shown a united front on any healthcare proposal. Their view on lower taxes, though, tends to be more unanimous. A massive tax break for big corporations should be a much easier position to gain support.

The Bottom Line on Cisco

The IoT could be the biggest technological development of the next 10 years, and Cisco is the best ‘picks and shovels’ way to play it. And in the meantime, shareholders can collect big and growing dividends while they wait. For these reasons, it’s my favorite dividend stock for the next 10 years.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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