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."

Quarterly dividends better than Cisco

[GPLDAN]

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.

No doubt about it

[tux_deamon]

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).

First Flame

[Auckerman]

This could be because MOST public companies pay their profits every quarter to investors rather than store it in the bank. Microsoft begins to actually give their profits to their investors, which off the top of my head Redhat has always done (should they make a profit), and it's something "(I'll) never see Redhat do". I don't get the reasoning.

Re:Outstanding

[scowling]

Because the defining purpose of any public corporation is to maximize profit for the shareholders, then by definition all public corporations behave unethically.

Re:Outstanding

[tux_deamon]

The defining purpose of a public corporation isn't to maximize profit by any means necessary. We live in a society of laws and regulation. So no, not all corporations necessarily engage in unethitcal activity in pursuit of profit.

Re:Outstanding

[LordSah]

So, how many companies can you invest in, ethically?

Re:Who owns the bought-back stock.

[nzgeek]

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.

Re:Outstanding

[scowling]

It is to do so by any legal means necessary, because failure to do so could set up the CEO and the Board as the defendants in a civil suit by the shareholders.

One can be unethical and still remain within the law; my point stands.

Re:Outstanding

[hazem]

Because the defining purpose of any public corporation is to maximize profit for the shareholders, then by definition all public corporations behave unethically.

It's actually to maximize value rather than profit.

A company can sell all of its assets and fire all its employees and they'll show great profits for that quarter. Unfortunatley they did not maintain the value of the company.

Acting unethically has an impact on the value of a company, but only as much as the society and pool of potential investors estimate that value. A company can only act as unethically as the society will allow.

Re:No doubt about it

[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.

401ks and mutual funds

[Thumpnugget]

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.

Re:Outstanding

[tux_deamon]

No, this was your original point (nice try):

Because the defining purpose of any public corporation is to maximize profit for the shareholders, then by definition all public corporations behave unethically.

I submit that a corporation can behave ethically, and still maximize profit. Ethical behavior does not preclude the possibility of maximizing profit.

Re:Well, good.

[Tackhead]

> 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.

Re:Outstanding

[Nakito]

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.

Sweet!

[daringone]

You get 32 cents a year for owning stock that cost (as of end of day on 7/20/04) $28.32. A whopping 1.1% dividend! WOOHOO!!! Tell ma I'm buying her a house!

The question is, who owns the company?

[Engineer-Poet]

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.

Re:Outstanding

[iamacat]

Nope, the purpose of a public corporation is to do what they told you they would do when you invested and let you benefit from your share of the profit, by dividends or growth of the share price. If you invest in a ship, they better sail to the indies and come back with the goods to sell. They don't have to abandon all their employees at destination and come back with cheaper natives to man the sales. That's just captain's greed.

Being famous, Bill Gates could make serious money by literally screwing thousands of customers, male or female. Should shareholders require him to take his ass to Microsoft France and make money from what he is doing anyway.

Re:Got to be a catch in their someplace

[hamsterboy]

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 the largest number of super-rich people in the world, and our per-capita GDP is also one of the largest. Where's the evidence that having super-rich people is harmful? In fact, show me a super-rich person who isn't funding economic growth (through stock purchases or direct loans to entrepeneurs).

Hamster

Good news

[ektor]

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.

Re:No doubt about it

[YU Nicks NE Way]

No. It was explicitly not a finding that there was any evidence that Microsoft had acquired its monopoly in operating systems illegally. That's an important point: governments break up illegally acquired monopolies, independent of whether it will harm the companies involved or not. Judge Jackson's decision overreached, in part, because he used the wrong standard for considering the costs of the breakup to Microsoft. Since the monopoly was not illegally obtained, its fruits weren't illegal. Only the fruits of the illegal commingling of IE with the OS could be taken by the court -- and the government wasn't able to show that any of those existed.

I'm not an economist but...

[Vellmont]

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.

Pay attention to the backstory.....

[blackhedd]

This move was not entirely unexpected, you always give the investors' money back to them if you can't find anything better to do with it. Microsoft has always been an extremely disciplined purchaser of companies (you know what I mean if you've been f****d by them). What this is saying is that there are no really good opportunities at MSFT's current scale. It also means, if you're paying attention, that the center of gravity of tech investment (eventually becoming innovation) is moving elsewhere... FOSS is driving a secular change in our industry.

Re:Got to be a catch in their someplace

[maxpublic]

You said he was only interested in accumulating wealth and power. I call bullshit.

Yes, bullshit. He's also interested in rewriting history in his favor. The rich have been using gifts to charity to obscure past immoral and illegal actions for centuries; it's a timeless tradition stretching all the way back to the dawn of human history.

Bill knows he isn't going to live forever and he wants people to worship at his grave site - much like loser geek Microsofties worship him now. The best way to do that is to buy absolution, a practice so common that at one time the Catholic church did a booming business in the sale of forgivenness.

I seriously doubt ol' Bill is as interested in charity as he is in how he'll be portrayed once he's pushing up daisies.

Max

Re:Outstanding

[nelsonal]

Usually companies that are over capitalized trade down after the dividend goes ex (meaning that you get the dividend if you own it on a certain day). People were generally already pricing the cash into the stock (usually looking at earnings over enterprise value (no cash). The buyback plan isn't really that much bigger than their old one that let shares grow slowly (figure that 1/3 or so of that will actually reduce shares--I'll let you do the math).

Re:No doubt about it

[NanoGator]

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

Wrong. MS was found guilty of trying to keep the monopoly, not create it. Simply put: MS did not have the capability to become a monopoly so fast without people wanting it first. Don't remember the wave of hype surrounding Windows 95?

Re:Well it makes me happy

[tekunokurato]

Yeah, and I was worried about that one, but it definitely fell through, and good for ms that it did; SAP is very, very distant from what they are really good at. Complex crm implementations are not their bag!

Re:Outstanding

[whorfin]

That may be a poor example of slaves, but there are plenty of reasons to dislike Walmart and their sort. Consider this: a typical wal-mart employee will still probably not have medical insurance, and will qualify for state assistance, which we all end up paying for anyway.

Atlanta Journal Constitution article [google.com]

Effectively, our tax dollars are subsidizing Walmart, everywhere around the country. We get cheaper crap, but we pay higher taxes, and local/state governments go broke so that Walmart and their kin can have tidy profits.

If this is happening to their regular employees, you can bet that worse is happening to their contractors, and worse for those in countries where they have arms-length dealing with businesses who are not legally obligated to any humane treatment of their employees.

Re:Who owns the bought-back stock.

[Sinterklaas]

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

That is complete and utter nonsense. Buying back stock means that the value of the company and the number of investors is reduced, but the investors that remain still own the entire company. Let's give an example:

5 equivalent stocks are out there. The company is worth 5 million, so each stock is worth 1 million. The company now buys back 4 stocks for 4 million. The result is that the remaining stock is now worth the same as the company: 1 million. The company could buy back the last stock as well, but only by liquidating (selling all assets, thus going out of business). Another possibility is that the people who run the company use their own money to buy the remaining stocks, which would make them owners just like a Mom-and-Pop corner store. However, even then the company doesn't 'own itself', it just happens to be that the owners also run the company.

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.

The reason that they are giving one-time dividends and buying back stock is actually that they make too little money. Let me explain: In the world of money, ROI is everything. Making 1 million on an investment of 1 million is good, making that same amount after investing 1 billion is not so good. Now, if a company has earned a lot of money in the past, but can't use this money to generate new profits, the value of the company becomes less and less. The stock is worth a lot (because of all the money in the company's coffers), but the profit is marginal. This makes investors very unhappy (unless the stock is increasing in value, but that is no longer a given for MS, since they are transforming from a growth stock to an income stock).

A way to fix this is to simply give the money to investors (one-time dividends). This effectively decreases the value of the company, resulting in a better profit per invested dollar (but not per share). A second possibility is to buy back stocks. This is very similar to a one-time dividend, since company money is given back to investors. However, the dividend per stock also increases, raising the value of stocks. Some more info on the advantages and disadvantages of stock buybacks [investopedia.com].