Cash-rich Microsoft raises dividend payment 23%
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Microsoft Corp. on Tuesday boosted the dividend payment on its stock 23%, the first increase in two years, hoping to show its “commitment” to sharing its huge cash flow with stockholders.
The software giant said its board raised the quarterly dividend to 16 cents a share from 13 cents.
The company’s stock fell 28 cents, or 1.1%, to $25.15 in regular trading, before the announcement. The stock rose to $25.33 in after-hours trading. At that price the new annual dividend of 64 cents a share provides a yield of 2.5%, compared with about 2.6% for the average stock in the Dow Jones industrial average.
Major companies have been under pressure to funnel to investors more of the cash hoard they’ve built up over the last 15 months as earnings have rebounded from the recession.
Large tech firms, in particular, are sitting on piles of cash. Microsoft had $37 billion in cash and short-term securities on its balance sheet at midyear.
Computer networker Cisco Systems, which has amassed $40 billion in cash, last week said it planned to start paying a dividend by mid-2011.
Tech companies have long favored using excess cash for share buybacks, with the aim of boosting their stock prices. But with interest rates on bonds and bank savings so low, many investors are starved for investment income. Rising dividends could help fill that void -- and attract more investors to equities.
Microsoft has continued to buy back stock, but its shares are no higher now than they were in 2003, and the price is down 17.5% year to date.
“This higher dividend, combined with our ongoing share repurchase program, reflects our commitment to returning capital to our shareholders and our confidence in the long-term growth of the company,” Peter Klein, the company’s chief financial officer, said in a statement.
As of midyear the company said it had nearly $24 billion in board-authorized share repurchases left to complete.
Klein also said the company’s board authorized up to $6 billion in additional borrowing. Bloomberg News reported last week that Microsoft was likely to borrow to fund additional stock buybacks and dividend increases because much of its cash holdings are held overseas. Bringing that money home would mean the company would take a tax hit.
Meanwhile, investors could face higher federal taxes on dividends if Congress fails to extend the Bush tax cuts of 2001 and 2003, which expire Dec. 31.
-- Tom Petruno