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Microsoft The Almighty Buck

Microsoft Announces Dividend and Stock Buyback Program 411

Posted by michael
from the more-than-3000-patents-this-fiscal-year dept.
neile writes "Microsoft just announced some of their plans for their large cash reserves. This includes moving to quarterly dividend payments of $0.08 a share (up from $0.16 annually), and a special one-time dividend of $3.00 a share in December. The Board of Directors also approved a four-year, $30 billion, stock buyback plan."
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Microsoft Announces Dividend and Stock Buyback Program

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  • Outstanding (Score:4, Interesting)

    by PhreakinPenguin (454482) on Tuesday July 20, 2004 @06:03PM (#9753883) Homepage Journal
    I knew I bought their stock for a reason. I know I will get modded down for this or flamed but you'll never see a company like Redhat do this. Regardless of your opinion of MS, this is a good move to reward stockholders.
    • No doubt about it (Score:5, Insightful)

      by tux_deamon (663650) on Tuesday July 20, 2004 @06:09PM (#9753947)
      Microsoft is great at one thing; making money. Unfortunately, being good at making money doesn't necessarily mean they have to be good at making software (at least considering how they've gone about it).
      • by Anonymous Coward
        I hate to break it to you, but MS got rich by selling a decent 'consumer' product for a decent price. People don't NEED to run Windows, they choose to do so because, unlike Linux, it was designed with your everyday user in mind. Sure it has bugs, but it's easy to use and the machines are cheap that run it.
        • Re:No doubt about it (Score:5, Informative)

          by tux_deamon (663650) on Tuesday July 20, 2004 @06:33PM (#9754208)
          I guess you missed the Microsoft Antitrust Trial [wikipedia.org] that was in all the papers the last few years?
    • Re:Outstanding (Score:2, Interesting)

      by Moofie (22272)
      So you think that buying stock in an unethical company is ethically neutral?

      I think you're wrong.
      • Re:Outstanding (Score:3, Insightful)

        by LordSah (185088) *
        So, how many companies can you invest in, ethically?
        • Re:Outstanding (Score:3, Interesting)

          by tux_deamon (663650)

          Well, there are mutual funds dedicated to investing in socially conscious/socially responsible corporations. Your bank/investment advisor can probably give you some more information.

          But here's a directory worth looking at [yahoo.com]

          Interestingly, one of the pioneers of the movement is US VP Candidate Peter Camejo [wikipedia.org].

          The general idea is to invest in companies with good track records in the areas of human rights, labor, business ethics, the environment, etc.

    • by pilgrim23 (716938) on Tuesday July 20, 2004 @06:12PM (#9753973)
      I used to have Microsoft stock, but one day I opened my portfolio and all the certificates had turned blue with incomprehensible writing on them. When I called my broker he assured me everything was all right, it was all a part of doing business and that I should put the stocks back in my old shoe where I stored them. So...I rebooted...
    • Re:Outstanding (Score:5, Insightful)

      by Nakito (702386) on Tuesday July 20, 2004 @06:32PM (#9754197)
      Pre-announcing a major ($3) dividend to be paid many months from now seems kind of funky. This will be immediately priced into the share value, of course -- every share is immediately worth that much more since everyone knows the distribution is coming. It's analogous to the "ex dividend" period of that occurs when a distribution is pending, except that the amount is huge and it's much longer in the future (almost half a year!). On top of that, a major buyback plan means that there will be sustained buying pressure on the stock.

      So call me cynical, but this is the first thought that came into my head: These events will cause all of the executives to hit the strike price on their stock options.
      • Actually, the $3 dividend will raise the price of the stock by slightly less than $3/share (because it's a future value), while reducing the price of the company by slightly less than $3/share (because the money is going to be payed out.) Once the dividend is payed, the cash is gone -- the $56 billion hoard becomes $26 billion.

        In the end, the two effects cancel each other out. If there's a rise in the price of each share, it's because the company is seen as making better money on other activities than on
        • Microsoft makes 4 billion on year on investment of its 56 billion. paying that money for 4 years would mean 16 billion down. Then another 14, they would still have 42B in the bank.
          • You're confusing the buyback with the dividend. The dividend happens in December, all at once. After that is payed out, the company will have approx. $30G in the bank.
            • no no no! The buy back of 30B in shares is over the next 4 years. the $3 dividends is in december.

              By the way, at the share price ($28), $3 represents nearly 12% annualized retun. so for people with underperforming stock, unless MS stock goes down, it's an attractive stock. Fueled demand will raise the stock price.
              • The buy back of 30B in shares is over the next 4 years. the $3 dividends is in december
                Microsoft has 10.7G shares outstanding right now. The holder of each of those shares gets $3/share. That's $32.1G as a block in December.

                More than that, the $3 is a one-time distribution. It's not appropriate to view it as an annuity, 'cause it aint. It's just a transfer of funds from the company to the shareholders, no more, no less.
    • Well it's a strategic move to get people interested in their stock. The stock has hardly moved at all over the last 4 years, they had to cut employee benefits to show a profit this quarter and now they are rewarding stockholders and promising large payouts before December in order to get their stock price moving again.

      Doesn't take a stock analyst to figure out the ulterior motive behind this one. Though I would say to sell within the next 2 years unless you can actually wait til 2008 when Longhorn comes ou
    • Residual theory suggests that dividend policy is irrelevant as investors are indifferent between dividends and capital gains.
      It is the assets of the firm that generate the stream of income - how that stream is distributed (dividends or capital gains) is irrelevant.

      Higher Dividend -> Lower Profit Retained -> Lower Capital Investment -> Lower Profit -> Lower Divident Growth

      Low Dividend -> Higher Profit -> Higher Capital Investment -> Higher Profit -> HIgher Dividend Growth

      If you wis

    • but you'll never see a company like Redhat do this


      Only because Redhat doesn't have a big pile of money sitting around doing nothing. If they did Redhat would invest the money in product development, another company, etc. It's not neccessarily a healthy thing that MS can't think of anything better to do with the money.
  • by kippy (416183) on Tuesday July 20, 2004 @06:05PM (#9753901)
    Crap, I was hoping for a Mars mission.
    • by LordSah (185088) *
      That would be so damned cool. Imagine the Slashdot responses...

      "Microsoft didn't have that idea first. They are just copying NASA. Embrace and extend, eh?"

      "They'll probably build the Mars rocket using their own 'standards' instead of open ones."

      "A morally defunct company announces a morally defunct Mars mission."

      "The rocket won't run Linux."
  • by hostyle (773991) on Tuesday July 20, 2004 @06:06PM (#9753915)

    "... and all seven of our businesses are growing," said Steve Ballmer

    Seven businesses? Can anyone enlighten me on this? OS, Software, Xbox, MSN, selling hotmail addresses to spammers?

    • You forgot AdTI and SCO...

      Oh, wait...

    • Re:seven businesses? (Score:5, Informative)

      by Anonymous Coward on Tuesday July 20, 2004 @06:23PM (#9754104)
      Sure thing:

      1 - Windows Client, including the Microsoft® Windows® XP desktop operating system, Windows 2000, and Windows Embedded operating system.
      2 - Information Worker, including Microsoft Office, Microsoft Publisher, Microsoft Visio®, Microsoft Project, and other stand-alone desktop applications.
      3 - Microsoft Business Solutions, encompassing Great Plains and Navision business process applications, and bCentral(TM) business services.
      4 - Server and Tools, including the Microsoft Windows Server System(TM) integrated server software, software developer tools, and MSDN®.
      5 - Mobile and Embedded Devices, featuring mobile devices including the Windows Powered Pocket PC, the Mobile Explorer microbrowser, and the Windows Powered Smartphone software platform.
      6 - MSN, including the MSN® network, MSN Internet Access, MSNTV, MSN Hotmail® and other Web-based services.
      7 - Home and Entertainment, including Microsoft Xbox®, consumer hardware and software, online games, and our TV platform.

      It's how the corporation is structured from a business perspective. http://www.microsoft.com/mscorp/articles/business. asp
    • Re:seven businesses? (Score:2, Informative)

      by illuvata (677144)
      since i wondered the same thing, i looked here [microsoft.com]

      Windows Client, including the Microsoft® Windows® XP desktop operating system, Windows 2000, and Windows Embedded operating system.

      Information Worker, including Microsoft Office, Microsoft Publisher, Microsoft Visio®, Microsoft Project, and other stand-alone desktop applications.

      Microsoft Business Solutions, encompassing Great Plains and Navision business process applications, and bCentral(TM) business services.

      Server and Tools, includin

  • by i_want_you_to_throw_ (559379) * on Tuesday July 20, 2004 @06:07PM (#9753925) Homepage Journal
    Pay attention to the Forward Looking Statement..

    "the availability of competitive products or services such as the Linux operating system at prices below our prices or for no charge; "
  • Oh yeah- the catch is Bill Gates Sr. He's always taught his son that vast accumulation of wealth was bad for the economy overall. The one redeeming factor of the Gates family has always been small estates (for the socioeconomic class they're in anyway- MY parents can't afford to give me a $100,000 loan to drop out of college and start a business). Maybe Bill Gates Jr. finally convinced his board what his father always taught him.
    • by blackmonday (607916) on Tuesday July 20, 2004 @06:33PM (#9754207) Homepage
      His dad's a real interesting guy. He's a big supporter of inheritance taxes [forbes.com]. if I remember correctly, he believes society got you where you are, so you need to give back when you go away.

    • Sorry, but I've got to answer this, even though it goes against Slashthink.

      First, the "MY parents can't afford" hit was a bit below the belt. Have you ever borrowed a $20 from your parents? Probably because you needed/wanted it, and you didn't have it, right? Bill III did the same thing, only the scale is different - and he (a) made something on the money, and (b) paid it back in full, both of which I doubt about your parents' $20.

      Second, vast accumulation of wealth is not bad for the economy. The USA has
  • Well, good. (Score:3, Interesting)

    by scowling (215030) on Tuesday July 20, 2004 @06:08PM (#9753932) Homepage
    It doesn't make sense (to me) for a company to sit on top of massive cash reserves which represent, essentially, profit made by from the investment of stock buyers.

    But on the other hand, it wouldn't make sense for them to blow all of their reserves on dividends and buybacks. After all, not even Microsoft could be so arrogant as to blithely assume that they're going to keep making the kinds of profits they have been until the end of time.

    Um. Never mind.
    • Re:Well, good. (Score:5, Insightful)

      by Tackhead (54550) on Tuesday July 20, 2004 @06:29PM (#9754165)
      > But on the other hand, it wouldn't make sense for them to blow all of their reserves on dividends and buybacks.

      If, however, you're not sure whether President Bush will continue to tax long-term capital gains and qualified dividends at 15%, or President Kerry will demand that Congress undo the tax cuts, resulting in marginal tax rates on long-term capital gains of 20%, and all dividents at up to 39%, blowing some of those reserves on one-time dividends and buybacks over the next 12 months is a pretty good idea.

      Google for "special dividends", and you'll see that a lot of companies are doing this sort of thing (one-time "special" dividends of 5-10%, rather than merely raising their dividend by a few cents per share indefinitely) these days. You'll also notice that the trend started in the past six months -- right about the time people realized that the election is shaping up to be a statistical dead heat.

  • by GPLDAN (732269) on Tuesday July 20, 2004 @06:09PM (#9753941)
    These are the actions of a company that realizes they are no longer a growth stock and is no longer looking to finance things via the market but rather reward consistent investors and enter into a "slow, continuous growth" mode instead of acting like a start-up. Investors will like quarterly dividends and the buyback will shore up the flagging stock price.

    Now, if only Cisco would buyback their stock (way too many shares floating), start expensing their options like a proper company and start paying some dividends, maybe they could be considered a grown-up stock as well.
  • Panic! (Score:2, Interesting)

    by nzgeek (232346) *

    Man, I knew MS were worried about their lacklustre share price performance [cnn.com] compared to Apple [cnn.com], but this is a desperation move if ever I've seen one.

    Basically, this is a quick way to pump up your share price by almost three bucks, only to have it plummet by the same amount when it goes ex-dividend.

    Either that, or they are trying to lose that cash-mountain to make it less of a target for something over the horizon that we haven't seen yet. Think patent infringement lawsuit or something like that.

    • >Either that, or they are trying to lose that cash-mountain to make it less of a target for something over the horizon that we haven't seen yet.

      "Oh, instead of $53 billion, they only have $49 billion in cash. Lets call off the lawsuit since its not worth it anymore."

      Great logic there.
  • So does a buy back program mean that msft is buying shares in msft? This seems a bit odd as it creates a circular loop in the owenership. I own 0.0001% of msft, but that 0.0001% of msft owns 0.00000001% of msft.

    I understand that this is mainly to drive up stock prices, but could a company theoretically own itself. This stuff's confused me for a while.
    • arse.

      that last line should have been:

      I understand that this is mainly to drive up stock prices, but could a company theoretically own itself? This stuff's confused me for a while.
    • by davidwr (791652)
      It has the same effect as if the stock was bought back then the shares canceled. If I own 25% of MSFT, and MSFT buys back half of its outstanding stock from other people, I now own 50% of MSFT. I say "in effect" it's canceled because depending on where MSFT is incorporated, it may "hold" this stock as "treasury stock" so it can resell it later without "issuing" new stock. If it does not hold treasury stock, the stock is "canceled" and will have to be re-issued if MSFT wants to "sell" it.
    • by nzgeek (232346) * on Tuesday July 20, 2004 @06:19PM (#9754067) Homepage Journal

      There is no feedback loop. They buy back your shares, you no longer own them, so yes MSFT owns another 0.0001% of itself.

      Yes, a company could theoretically own itself. Much like a million and one Mom-and-Pop corner stores own themselves.

      The sharemarket exists as a way to distribute risk. A long time ago (in a galaxy fa...) MSFT said: "Hey we have this great idea to make software to sell to computer users, and we need money to do it. Rather than take out a bank loan, how about you guys (Mr and Mrs Mutual Fund Owner) shoulder some of the risk? If it works out, we'll both make lots of money!"

      If MSFT happens to make so much money that they can afford to buy the risk back from Mr and Mrs Shareholder, then more power to them. This is not the way it happens in reality though, because the risk always exists, and if MSFT happens to go down the toilet, they don't want to shoulder the entire burden. Better that Mom & Pop Shareholder take some of the pain too.

      Strange isn't it that most Fund Managers and Brokers never ever mention the 'Risk' part of the equation eh? They always talk about 'equity' and 'investment'.

      I'll say it again: the sharemarket is simply a way of distributing business risk. If you can't take the risk, invest in fixed income. Not as sexy and not as much possible upside, but not as much risk.

      • by Engineer-Poet (795260) on Tuesday July 20, 2004 @06:40PM (#9754272) Homepage Journal
        A long time ago (in a galaxy fa...) MSFT said: "Hey we have this great idea to make software to sell to computer users, and we need money to do it. Rather than take out a bank loan, how about you guys (Mr and Mrs Mutual Fund Owner) shoulder some of the risk?
        The partnership model (essentially, a corporation without the legal features of limited liability and tradable shares) has a far longer history than banks.
        Yes, a company could theoretically own itself. Much like a million and one Mom-and-Pop corner stores own themselves.
        No they don't. Every one of those stores is owned by people. A corporation can own shares in other corporations, but there are limits to the depth you can nest "holding companies"; ultimately the ownership devolves to individuals, trusts (under the control of individuals), and the like.

        If MSFT buys back shares, then some people who once had shares have cash instead and the remaining people own a bigger fraction of the company. It's like some of the owners of a partnership allowing another partner to cash out, paying her off from the assets of the business.

  • ...can anyone smell what's in their kitchen?

    It might be enlightening if some insider anonymously posted their newer long-term shift in direction. This is a pretty major change and their motivation is what?
    • This is not a major change. Doubling the yearly dividend still puts almost no dent in their cash reserves. Check how many billions they make each year and work it out.

      The one-time $3 dividend serves a few purposes. It keeps investors complacent again. They became complacent when dividends were first announced. But now that the markets are up and their stock is stagnant investors are looking for better returns. This "proves" more value in their stock. To really distribute most of the cash reserves as
    • MS could never invest in Linux boom without going against it's share holders. But if they give the shareholders cash instead, and the share holoders invested it themselves, then it is OK.
  • So where does all the 'MS are a doomed, paniced entity, directionless and running in fear of Linux' we see here on /. fit into this view ?
    • Simple: they're no longer a high growth company. If they planned on having huge market growth (enterprise and government, especially) then they wouldn't be playing the value game. Linux is partly undercutting their profits and slowing their market growth, and they see no change in the near future. I'd say that fits right into the /. view.
      • Yes, but the computer industry in the US and Europe is slowing. MS gets most of it's money from upgrades (either from direct upgrades or most likley, computer builders buying new PCs and bundling OEM versions of windows with it).

        To be honest, Linux really hasn't dented Microsoft's profits or growth *yet*, in the desktop space. Maybe it's had a small impact in the server space but nothing drastic. Over the next 5-10 years we will see Linux really doing MS harm now Linux is also maturing.
  • seriously how many /.actually have MS stock.

    I'd file this in the sucks-to-be-me dept.

    • by Thumpnugget (142707) on Tuesday July 20, 2004 @06:22PM (#9754103)
      seriously how many /.actually have MS stock.

      There is a very good chance that anyone with mutual fund investments in growth funds that deal in mid-to-large-cap stocks will own a bit of Microsoft. Since I'm guessing there are quite a few people who are gainfully employed reading Slashdot that are probably younger, probably have a 401k, and probably are choosing longer-term investment options to grow their money, I would bet a significant percentage of (the gainfully employed) Slashdotters own a chunk of Microsoft, whether they realize it or not.

      I can't give you exact figures, but I know that I indirectly own a little chunk of Microsoft and I'm guessing a lot of other people here do too.
  • by BigGar' (411008) on Tuesday July 20, 2004 @06:11PM (#9753967) Homepage
    I was thinking that I'd read that Microsoft was cleaning about 1 billion per month. If that's accurate and continues the stock buy back would not affect cuurent cash reserves only slow the rate it builds. That would result in a reserve growth of 18 billion over the next 4 years instead of 48 billion, while at the same time reducing the number of publicly held shares which will probably up the stock price.
  • by tekunokurato (531385) <jackphelps@gmail.com> on Tuesday July 20, 2004 @06:14PM (#9754003) Homepage
    I just won $100! I bet my buddy that they couldn't come up with a better investment than a direct financial return to stockholders, and I was right (he thought they were going to buy somebody big). The bet's been going since late winter when they announced they'd have a plan for their cash by mid-summer.

    It really is a reflection of their growth prospects. Until now their stock value was still banking on a good deal of growth, and this announcement makes it clear that they probably won't achieve that.

    Actually, an interesting stat is that something like only 15% of stock buyback approvals in major companies actually materialize into actual buybacks.
  • "...the availability of competitive products or services such as the Linux operating system at prices below our prices or for no charge;..."

    This basically says the future looks bright ahead. MS is paying out much of their warchest. Any threat Linux may pose has been discounted. MS believes they'll hang onto their 96% of the market and do so while growing new products.

    • > This basically says the future looks bright ahead.

      No it doesn't. I'd say it is a combination of many of the reasons already discussed and one that hasn't

      1. MSFT stock has been dead in the water for several years.

      2. Microsoft is transitioning from growth stock to stable megacorp.

      3. But my fav is this line of reasoning. It is a forgone conclusion that sooner or later a major destructive Outlook/IE worm is coming. Something along the lines of a Warhol worm with a destructive payload. If a scri
  • Why not.... (Score:4, Funny)

    by carlos_benj (140796) on Tuesday July 20, 2004 @06:28PM (#9754155) Journal
    Hey, why don't they pay out that promised money for forwarding all those emails to Bill could test that email tracking software? I mean, I musta sent that thing to several hundred people expecting to reap big cash rewards and I haven't even seen a dime!
  • Good news (Score:4, Insightful)

    by ektor (113899) on Tuesday July 20, 2004 @07:25PM (#9754693)
    This is great news for Microsoft. It means it's going to keep focused on its current businesses and not do any big crazy move like buying SAP, Disney, Sun or something stupid like that.

    Most boards with that much money at their disposal would be tempted to get themselves on the headlines but the Microsoft leadership has always been sensible.
  • by Vellmont (569020) on Tuesday July 20, 2004 @07:37PM (#9754788)
    This seems like just a way to make the stock price rise. Someone correct me if I'm wrong, but:

    1. Give away a big one time dividend (stock is immeidately worth that much more/share).

    2. Buy back your shares, increasing demand for them, thus increasing the value.

    3. Buy back your shares, creating less total shares (since I'd assume the shares would no longer be outstading shares and not traded), thus increasing the value of each share.

    It's interesting, but kinda weird. As another poster said, they couldn't figure out what else to do with the big pile of money they had sitting around.
    • by mdfst13 (664665) on Wednesday July 21, 2004 @01:39AM (#9757032)
      1. No, it doesn't make the stock worth more, as it doesn't increase the assets or income of the company. In fact, once they pay the dividend, it makes the stock worth less (the company's assets are reduced).

      2 & 3. No, a buy back cancels itself out. It reduces the assets of the company (cutting the stock price) while decreasing the number of shares of stock (increasing the stock price). The two effects exactly cancel each other.

      The only way that either increases the stock price is by removing the risk that the company will go bankrupt and lose all that money. Once it is distributed, the company can no longer spend the money. As such, any increase in the stock price is saying that Microsoft is likely to become a money losing proposition. As a result, the stock should drop less than $3 per share, but it should still drop.
  • This is good news. period.

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