Microsoft's Dividend Payment: A Shift in Corporate Strategy?

Microsoft's decision to pay a one-time dividend of $3 a share to its investors, along with an increased annual dividend and a plan to buy back billions of dollars in its own stock, marks a significant change in the company's approach. Until recently, Microsoft didn't pay dividends at all, focusing on growth and expansion. However, with the company's stock performance declining over the past five years, the dividend payment can be seen as a way to encourage shareholders to stick around and wait for potential future growth.

Key Takeaways:

• Microsoft's growth stock status has declined over the past five years, with its stock price falling from the mid-40s to about 30 today.
• The company's core business of selling Windows software is incredibly profitable, but it has constraints on acquiring other large companies due to antitrust problems.
• Microsoft's investments in other lines of business, such as video games and online news services, will likely have lower margins and seem less profitable than its traditional line of business.
• The company's decision to pay a higher dividend is a form of a bribe to shareholders to stick around and wait for potential future growth.
• The dividend payment will generate about $3 billion in cash, some of which will go to Bill Gates, who will give it to his foundation.
• Steve Ballmer, the current CEO, is set to receive more than a billion dollars from the special dividend.

Statistics:

• Microsoft's stock price has fallen from the mid-40s to about 30 today over the past five years.
• The company's core business of selling Windows software is incredibly profitable, generating tens of billions of dollars in cash every quarter.
• The dividend payment will generate about $3 billion in cash.
• Steve Ballmer will receive more than a billion dollars from the special dividend.

Sources:

• Madeleine Brand and Dan Gross, "Microsoft's dividend payment: A shift in corporate strategy?", an interview on NPR's Day to Day, April 29, 2008.
• Daniel Gross, "The Microsoft Dividend", Slate Moneybox, April 29, 2008.