13 ms·

Microsoft announces quarterly dividend increase and share repurchase program

35 points by vukmir 13y ago

JimboOmega 13y ago
I wonder what this means in terms of Microsoft's overall corporate direction... however, the scale isn't large enough to indicate that they intend to stop deploying cash to expand into new markets. (e.g., instead of throwing billions to promote bing, they just return the money to shareholders). Still, it's a noteworthy change that might mark the beginning of a change towards the post-Ballmer era.
- tanzam75 13y ago
  Microsoft has been buying back shares and increasing its dividend since 2004. This is just a continuation of the existing program. It would have been more noteworthy if Microsoft had stopped buying back shares, or stopped paying the dividend, or even just allowed the dividend to remain unchanged.
jacquesm 13y ago
Both are ways to return money to the shareholders with the balance shifting from giving more flexibility to the shareholders vs more flexibility to the company. Of course the chunks are substantially larger when it comes to buying back individual shares vs paying out a (still relatively small) dividend so there will likely be a balance struck between the two. By announcing a share repurchase they are also signalling they believe that the shares are undervalued but the strength of that signal is strongly dependent on the amount of money they commit to buying back stock, in this case about 1/7th of their total cap.
casca 13y ago
It's very interesting that Microsoft is the first large tech company to do this in the current cycle. So many of their peers are also wallowing in cash and seemingly unwilling to make large investments so the pile keeps growing. Companies are supposed to use their capital to innovate and create new, market-changing products and services. Perhaps it's because interest rates are so low and therefore capital is so cheap? Is the hording related to an expectation of another round of the regular tax amnesty for them to repatriate the funds to the US?
- ciniglio 13y ago
  Is Apple not doing the same (I believe they started last year)?
  - teamonkey 13y ago
    And Dell, announced only a few days ago.
- a-priori 13y ago
  I don't buy the "wallowing in cash" argument. In the last quarter, Google reported $54.4B in cash and short term investments and $14.1B in revenue, Apple reported $42.6B in cash and equivalents and $35.3B in revenue and Microsoft reported $76.7B in cash & equivalents and $19.8B in revenue. Measured in terms of quarters of revenue held in cash & equivalents, Google and Microsoft are more or less tied at 3.8 quarters, and Apple is running relatively lean at 1.2 quarters. Despite not paying dividends Google is, proportionate to revenue, not holding any more cash than Microsoft, and Apple is holding far less.
  - gohrt 13y ago
    Why is 'revenue' the proper denominator, and not 'earnings' ? Sure, if revenue hypothetically vanished, cash could cover it, but a lot of revenue is tied to expenses ("cost of goods sold" in the retail world), so if revenue dropped, expenses would as well.
  - InclinedPlane 13y ago
    You should be using profit not revenue (also, not all quarters are the same, using merely the most recent one is a bad practice). Measured in terms of years of profit being hoarded google is at 5 years, Apple is at 1 year, and Microsoft is at 3.5 years. No matter how you slice it that's a crap ton of money.
  - jcampbell1 13y ago
    Apple has $140B of cash/near-cash. It just get's bucketed as long term investments because of GAAP rules.
beambot 13y ago
Subtext: We don't know where to put the $$ at this critical transition point (Ballmer leaving). Rather than figuring it out, we're just going to give the money to shareholders -- that's the safe way so that they can't question our fiduciary responsibility.
- Mikeb85 13y ago
  All tech companies should do this once they reach a certain maturity. Eventually every company should return capital to the markets, otherwise the markets would just be one big ponzi scheme...
  - stingraycharles 13y ago
    Not necessarily a good comparison, since the shares can be traded. You can step in very late and still have all the chances to get very rich, which is hardly possible with a Ponzi scheme.
    - jlgreco 13y ago
      Getting into a Ponzi scheme late is okay, so long as you still get out early (before it becomes apparent that it is a Ponzi scheme).
    - Mikeb85 13y ago
      A ponzi scheme is defined by the fact that the only profit to be made comes from people who buy in after you. If companies don't return capital to the markets (through dividends or buybacks), then it absolutely fits the definition of ponzi scheme. The proper cycle of a publicly traded company is that it trades equity for capital, uses said capital to invest in itself, then returns capital when it reaches a certain maturity. Anything else is a scam.
      - chris_mahan 13y ago
        Or the company is bought out for cash, as in the case of Dell, or bought by another company for cash and/or shares.
marssaxman 13y ago
They've been a revenue producer and not a growth producer for a long time now, so it's good that they're finally paying out some dividends.
- InclinedPlane 13y ago
  They've been paying out an ok dividend for a while but not really enough to make up for the flat stock price.
tocomment 13y ago
I never understood the purpose of share buybacks. Sure there will be less shares outstanding but the company will be worth that much less from having spent the cash to buy the shares. How does that benefit anyone?
- melange 13y ago
  It makes sense if the company believes that it's own shares are underpriced.
- 3pt14159 13y ago
  It increases demand for the shares which raise the price. It is a way of paying out the people that are most eager to leave. For example, say you and I both owned a company together, each of us with one share. If the company had 100 bucks in the bank and an app that earned 1 dollar a month, the company could offer 60 dollars for a share. This gives us a point of discrimination where I might take the deal since I feel like I could put it to better use elsewhere. Furthermore in some places capital gains are more attractive than dividends (I know, it is stupid. It has to do with the original purchase price and changing tax rates over the years). So what some companies do is both a dividend and a share buy back for different classes of shares both of which are convertible to a "true" share. That way you can determine which method you want to get you money out of the stock.
- Tuna-Fish 13y ago
  It transfers money from the company to the owners, just like dividends do. Other than possibly providing different tax outcomes, share buybacks and dividend payments are completely equivalent. Any shareholder can take their portion of the dividend/buyback as either as ownership of the company, or as cash, by trading the relevant amount on the market.
  - eigenvalue 13y ago
    This is actually not true because it ignores the fact that a company's shares could be trading cheap or dear. One dollar in the form of a dividend payment is always worth one dollar (ignoring taxes), whereas if the company can buy in a share with intrinsic value of X for the cost of 0.8*X, then it is "creating value" for the remaining shares. Conversely, if the shares are expensive relative to intrinsic value, then a buyback destroys value for the remaining shares.

35 points by vukmir 13y ago

I wonder what this means in terms of Microsoft's overall corporate direction... however, the scale isn't large enough to indicate that they intend to stop deploying cash to expand into new markets. (e.g., instead of throwing billions to promote bing, they just return the money to shareholders). Still, it's a noteworthy change that might mark the beginning of a change towards the post-Ballmer era.

tanzam75 13y ago
Microsoft has been buying back shares and increasing its dividend since 2004. This is just a continuation of the existing program. It would have been more noteworthy if Microsoft had stopped buying back shares, or stopped paying the dividend, or even just allowed the dividend to remain unchanged.

jacquesm 13y ago

Both are ways to return money to the shareholders with the balance shifting from giving more flexibility to the shareholders vs more flexibility to the company. Of course the chunks are substantially larger when it comes to buying back individual shares vs paying out a (still relatively small) dividend so there will likely be a balance struck between the two. By announcing a share repurchase they are also signalling they believe that the shares are undervalued but the strength of that signal is strongly dependent on the amount of money they commit to buying back stock, in this case about 1/7th of their total cap.

casca 13y ago

It's very interesting that Microsoft is the first large tech company to do this in the current cycle. So many of their peers are also wallowing in cash and seemingly unwilling to make large investments so the pile keeps growing. Companies are supposed to use their capital to innovate and create new, market-changing products and services. Perhaps it's because interest rates are so low and therefore capital is so cheap? Is the hording related to an expectation of another round of the regular tax amnesty for them to repatriate the funds to the US?

ciniglio 13y ago
Is Apple not doing the same (I believe they started last year)?
- teamonkey 13y ago
  And Dell, announced only a few days ago.
a-priori 13y ago
I don't buy the "wallowing in cash" argument. In the last quarter, Google reported $54.4B in cash and short term investments and $14.1B in revenue, Apple reported $42.6B in cash and equivalents and $35.3B in revenue and Microsoft reported $76.7B in cash & equivalents and $19.8B in revenue. Measured in terms of quarters of revenue held in cash & equivalents, Google and Microsoft are more or less tied at 3.8 quarters, and Apple is running relatively lean at 1.2 quarters. Despite not paying dividends Google is, proportionate to revenue, not holding any more cash than Microsoft, and Apple is holding far less.
- gohrt 13y ago
  Why is 'revenue' the proper denominator, and not 'earnings' ? Sure, if revenue hypothetically vanished, cash could cover it, but a lot of revenue is tied to expenses ("cost of goods sold" in the retail world), so if revenue dropped, expenses would as well.
- InclinedPlane 13y ago
  You should be using profit not revenue (also, not all quarters are the same, using merely the most recent one is a bad practice). Measured in terms of years of profit being hoarded google is at 5 years, Apple is at 1 year, and Microsoft is at 3.5 years. No matter how you slice it that's a crap ton of money.
- jcampbell1 13y ago
  Apple has $140B of cash/near-cash. It just get's bucketed as long term investments because of GAAP rules.

beambot 13y ago

Subtext: We don't know where to put the $$ at this critical transition point (Ballmer leaving). Rather than figuring it out, we're just going to give the money to shareholders -- that's the safe way so that they can't question our fiduciary responsibility.

Mikeb85 13y ago
All tech companies should do this once they reach a certain maturity. Eventually every company should return capital to the markets, otherwise the markets would just be one big ponzi scheme...
- stingraycharles 13y ago
  Not necessarily a good comparison, since the shares can be traded. You can step in very late and still have all the chances to get very rich, which is hardly possible with a Ponzi scheme.
  - jlgreco 13y ago
    Getting into a Ponzi scheme late is okay, so long as you still get out early (before it becomes apparent that it is a Ponzi scheme).
  - Mikeb85 13y ago
    A ponzi scheme is defined by the fact that the only profit to be made comes from people who buy in after you. If companies don't return capital to the markets (through dividends or buybacks), then it absolutely fits the definition of ponzi scheme. The proper cycle of a publicly traded company is that it trades equity for capital, uses said capital to invest in itself, then returns capital when it reaches a certain maturity. Anything else is a scam.
    - chris_mahan 13y ago
      Or the company is bought out for cash, as in the case of Dell, or bought by another company for cash and/or shares.

marssaxman 13y ago

They've been a revenue producer and not a growth producer for a long time now, so it's good that they're finally paying out some dividends.

InclinedPlane 13y ago
They've been paying out an ok dividend for a while but not really enough to make up for the flat stock price.

tocomment 13y ago

I never understood the purpose of share buybacks. Sure there will be less shares outstanding but the company will be worth that much less from having spent the cash to buy the shares. How does that benefit anyone?

melange 13y ago
It makes sense if the company believes that it's own shares are underpriced.
3pt14159 13y ago
It increases demand for the shares which raise the price. It is a way of paying out the people that are most eager to leave. For example, say you and I both owned a company together, each of us with one share. If the company had 100 bucks in the bank and an app that earned 1 dollar a month, the company could offer 60 dollars for a share. This gives us a point of discrimination where I might take the deal since I feel like I could put it to better use elsewhere. Furthermore in some places capital gains are more attractive than dividends (I know, it is stupid. It has to do with the original purchase price and changing tax rates over the years). So what some companies do is both a dividend and a share buy back for different classes of shares both of which are convertible to a "true" share. That way you can determine which method you want to get you money out of the stock.
Tuna-Fish 13y ago
It transfers money from the company to the owners, just like dividends do. Other than possibly providing different tax outcomes, share buybacks and dividend payments are completely equivalent. Any shareholder can take their portion of the dividend/buyback as either as ownership of the company, or as cash, by trading the relevant amount on the market.
- eigenvalue 13y ago
  This is actually not true because it ignores the fact that a company's shares could be trading cheap or dear. One dollar in the form of a dividend payment is always worth one dollar (ignoring taxes), whereas if the company can buy in a share with intrinsic value of X for the cost of 0.8*X, then it is "creating value" for the remaining shares. Conversely, if the shares are expensive relative to intrinsic value, then a buyback destroys value for the remaining shares.