July 21, 2004 — The decision of tech bellwether Microsoft Corp (MSFT) to pay a special dividend, double its quarterly dividend, and repurchase some of its stock, should make its stockholders very happy. Mutual funds with high stakes in the company will also benefit from this enormous shower of cash.
Microsoft said it would boost its current annual dividend of $0.16 per share to a quarterly dividend of $0.08 per share, buy back up to $30 billion in stock over the next four years, and pay a one-time special dividend of $3 per share. These measures could result in an enormous payout of up to $75 billion over the next four years, resulting in the largest cash issuance in corporate history.
Romeo Dator, portfolio manager of the U.S. Global Investors Fds:All American Equity (GBTFX), was not surprised by Microsoft’s payout decision. “They had been talking about a dividend for a while now,” he said. “With the level of cash they are carrying, something like $56 billion, there was no reason to keep holding onto it, given that they are no longer a ‘growth’ story.”
Howard Silverblatt, equity market analyst at Standard & Poor’s, noted that “Microsoft’s increased and special dividend will not go unnoticed by other companies looking at large cash reserves. Cash and short-term investments have been mounting up in recent years, and the S&P Industrials cash on hand now stands at $555 billion, compared to under $500 billion at year-end 2003, and $260 billion at year-end 1999.”