Microsoft Announces Dividend and Stock Buyback Program

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."

The Linux caveat.....

[i_want_you_to_throw_]

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; "

in effect, it's canceled

[davidwr]

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.

Re:seven businesses?

[Anonymous Coward]

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?

[illuvata]

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, including the Microsoft Windows Server System(TM) integrated server software, software developer tools, and MSDN®.

Mobile and Embedded Devices, featuring mobile devices including the Windows Powered Pocket PC, the Mobile Explorer microbrowser, and the Windows Powered Smartphone software platform.

MSN, including the MSN® network, MSN Internet Access, MSNTV, MSN Hotmail® and other Web-based services.

Home and Entertainment, including Microsoft Xbox®, consumer hardware and software, online games, and our TV platform.

Re:First Flame

[AT]

Huh? Most public companies take their profits and reinvest them in the company. This may or may not help the company grow and reward investors by making the company more valuable. Some companies pay out dividends (i.e. pay out profits to investors), usually because the company is not easily able to expand so growth is not an option. This is commonly seen in large companies in mature fields; think heavy industry, mining, railways, etc..

Redhat most definately does not give their profits to their investors; they are focused, like most tech companies, on growth, so they reinvest it in the company.

Re:No doubt about it

[tux_deamon]

I guess you missed the Microsoft Antitrust Trial [wikipedia.org] that was in all the papers the last few years?

What???

[Anonymous Coward]

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 guess you've never read the prospectuses that mutual funds are required (by law) to distribute to you and you are required to sign acknowledging having read prior to purchasing shares?

Re:Outstanding

[letxa2000]

I'm no fan of Microsoft, but the CNN article said that Bill will be donating his one-off special dividend (about $4.5 billion) to the Bill Gates foundation.

Re:No doubt about it

[tomhudson]

No, it was found that Microsoft had become a monopoly by engaging in specific illegal acts that hurt their competitors.

Consumer Operating Systems are not a natural monopoly.

Re:seven businesses?

[Anonymous Coward]

The Mac Business Unit is not a division unto itself.

Re:Dividend tax law

[donutello]

Charitable donation does NOT absolve you of paying tax on the income you donated.

That's not quite right. When you donate an amount of money to a charity you are absolved of all tax on that amount. However, your total tax savings are only equivalent to your marginal tax rate.

In other words, when you donate $100,000 (say) to charity, and your marginal interest rate is 17%, you save $17,000 in taxes but you're still out the $100,000 you donated so you have an effective loss of $83,000.

Re:First Flame

[michael_cain]

Most public companies take their profits and reinvest them in the company.

Historically, MOST large companies (eg, those in the S&P 500) regardless of industry pay a dividend on the order of 4% per year. Earlier in the 20th century, dividends averaged as high as 6-7%. Recently the average has dropped to 2-3%, which is a historical low. The tech companies that have gotten so big so fast in the last 20 years and still pay a tiny dividend are an exception, not the rule. Those companies have now reached a scale where it is unrealistic to expect them to be high-growth businesses (on a percentage basis), and are struggling to adjust to the fact that they are now "mature" firms.

Microsoft seems to be making the adjustment somewhat more quickly than the other new tech giants. Realizing that rapid share price appreciation was probably gone for good, they quit issuing options to the employees and now give limited stock grants. Realizing that they have pissed off a lot of shareholders by accumulating $60B in cash that they can't seem to use, they are issuing the one-time special dividend and increasing their annual dividend (although it will still be on the order of only 1%). I suspect that the stock buy-back is aimed more at trying to increase the share price for those thousands of disgruntled employees holding worthless options than anything else -- buying shares is no better "investment" than using the money internally, something they don't seem to be able to do, but it does have financial effects.

Re:First Flame

[jaoswald]

In theory, yes, but only in theory. A share in a corporation represents fractional ownership, but an individual shareholder can't exchange his share for that fraction of company assets. The best he could do is vote for directors who promise to auction off the company and give the proceeds to shareholders; it's quite rare that a publically traded company goes through that.

In practice, that share has monetary value because of two possibilities:

1) The company will distribute a portion of its profits as dividends. You own a fraction of the company, so you get a fraction of the profits. Just like owning your own company, but without the hassles of sole proprietorship.

2a) Someone else will buy the share from you. Now, this someone else is motivated by possibility #1, perhaps in the distant future

OR

2b) In principle, even if dividends were not being paid, a person or corporation with enough resources could buy a majority of the shares and either begin paying dividends, OR, take the company private or as a subsidiary, and take the profits or liquidate assets that way.

2B is usually just a theoretical floor to a stock's value when the possibility of dividends is still remote. I.e., why a "growth" company losing tons of money doesn't immediately go to zero stock price. In a bull market, the price is kept up by 2A, otherwise known as the "greater fool theory."

Re:Outstanding

[mdfst13]

Which is why Perot (who was similarly rich in the 70s) had Congress write a special tax exemption just for him one year.

I'll let you in on a secret. The way to become rich as a businessperson is to begrudge every penny you spend (while still spending it if necessary). Everyone who owned a business that I have ever met with increasing income has been like that. If Bill Gates can avoid paying a billion or so in taxes, he will, even if only out of habit. The money might be irrelevant to you if you had his money; it won't be irrelevant to him. If it was, he would have left Microsoft long ago.

It's also worth pointing out that giving money to a charitable foundation that you manage is not like giving it to charity. In fact, it can be a great way to maintain control of assets that you would otherwise lose. This is a large part of how the Ford family has maintained control of Ford. If they had passed it down through the generations, they would have lost half to taxes with each generation. As it is, the foundation just gives away its dividend income and holds onto the stock. Management of the foundation is kept within the family.

Re:I'm not an economist but...

[mdfst13]

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.