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Microsoft Considers $10 Billion Dividend
Dreadnougat writes "Microsoft is considering paying out a $10 billion dividend, the largest corporate payout ever. Cynics (ok, anyone reading /.) might note that Bill Gates stands to make $1.18 billion himself off the $1 a share dividend, in comparison to the $95 million he makes in a normal year off the regular 8 cents a share dividend."
If so, wouldn't bill get those billions without having to hand a few hundred million over to Uncle Sam?
There was an interview with Scott McNealy in one of the Linux magazines a few months back. In it, he said (paraphrasing) "if Sun ever pays out a sizeable dividend, it means we've run out of R&D ideas and the company's in trouble". I don't remember the exact wording, but that's the gist of it.
Essentially, Sun's policy is to reinvest all profits back into the company. Putting it another way, they're banking on being able to keep growing the company indefinitely and thus keeping shareholders happy solely through upward movement in the share price.
It seems that this may have been Microsoft's policy as well until now. Conspiracy theories aside, it'd be interesting to know what changed to make them issue a big dividend after all these years.
A taint is the space between your nut sack and asshole.
No, the area between frontal private parts and the anus is the "choad".
An "accoun-taint" is one who "taints" (alters deceptively) the books. See "taint" and the poster child.
Will I retire or break 10K?
How much of a reduction? How much will major stockholders stand to gain because of this being done now instead of 2-3 months ago?
And consider this: a lot of companies, institutions, foundations, trusts, etc. regularly buy securities for endowments and other investment purposes. Now, if Microsoft stock is a good performer, it would give Microsoft an "in" with those companies and institutions for software sales.
No matter what you think of Microsoft (and for the record, I do not have a single Microsoft product under my roof) this is a smart business move. And I might add that Linux cannot compete on these grounds, either. Smart move... seriously.
IAAL
Where'd that "$1 per share" stuff come from? All the reports I've seen today speculate about an increase from 8 to 26 cents per share, max.
But then, Slashdot could only troll about Gates taking 2 billion, not 10 billion. I'm sure it was just an editorial typo. Heh.
-- Slashdot: When Public Access TV Says "No"
Microsoft is made up of a load of long-timers who have made enough money through stock options that they don't really have to work and the newcomers whose stock options have been underwater for several years.
Without stock options (and the money generated with a rising stock price) neither the money or the work environment is much to write home about. Neither the old-timers or newcomers are particularly motivated and most of the "innovation" goes on by buying smaller companies.
Issuing a dividend is one way to pump the stock price up and thus motivate some employees.
How long do you have to ordinarily hold a stock before receiving a dividend? Could I buy M$ stock now and get the dividend?
How often are announcements like this followed up? How many dividend payouts are there in a year?
What I'm wondering is if I could make better profits from buying and selling at dividend time than the crappy 3% I get from the bank.
Kickstart
After Ralph Nader wrote MS a letter in January 2002 urging them to pay a substantial dividend you'd think other reflexive MS critics would applaud the move. Not the case here, where anything they do, no matter what, is the urging of Satan. This site can be a cesspool of shallow thought sometimes.
With $10,000,000,000.00 Microsoft could pay the salary of 10,000 programmers ($100,000/year) for 10 years and make Windows the best OS ever!
Bill Gates stands to make $1.18 billion himself off the $1 a share dividend
When you have as much money as Bill Gates has, what's a billion or so more? I mean, is it really such a big deal to him? I only wish he would be a bit more of a philanthropist and donate some of his massive wealth to help children in war-torn countries or find solutions to AIDS ravaged Africa. Instead, he uses his money to buy computers for public internet access across North America - certainly not bad - but it's self-serving since all the computers are running Windows operating systems.
SEO Copywriter. Just Say ON
Uh, the IRS doesn't require a corporation to pay out dividends...
h apter11.htm
I couldn't find any of the news article from the past that I have read that stated that the IRS was looking at M$'s excessive reserves, and it took me awhile to find something in Google that explains this clearly, but this excerpt does it nicely. I read it cached, it was from http://www.corporateservicecenter.com/Library/BKC
quote
Accumulating Excessive Earnings. Corporations that accumulate over $250,000 in earnings may be penalized by additional taxes on top of those that apply to corporate profits. The reason for this is that the Internal Revenue Service assumes that you are holding the money to avoid distributing taxable dividends. However, if your corporation plans to make significant equipment purchases, or is planning on expanding or diversifying, then reasonable grounds exist for retaining excess earnings. But your minutes must record the reasons for the accumulation, including the cost estimates for putting the plans into place. Your reasons do not have to be immediate. They can be long-range, since your minutes reflect your long-term corporate needs.
Other possible reasons for accumulating excessive earnings are:
For building inventory.
To protect against loss of profits when the corporation depends on a small number of customers.
To reserve funds for profit-sharing and pension plan obligations.
To invest or lend money to suppliers or customers that are necessary to maintain their business.
To build reserves against actual or potential lawsuits.
end quote
Not only does the IRS require paying dividends, in effect they consider it running a tax shelter if you don't and accumulate excessive earnings as M$ has. The basis for the reserved earnings all these years have been detailed in their financial statements.
I'm just a programmer, but I read the news.
rd
A thought here on MSFT's motivation. . .
m ll .com on shareholders asking for MSFT dividends, http://www.fool.com/dripport/2002/dripport021107.h tm
With the huge cash reserves they have, they should be taking a beating on the Accumulated Earnings Tax [FN-1]. I haven't done a lot of research on this (my Google research is below) but the short of it seems to be "if a corporation allows earnings to accumulate beyond the reasonable needs of the business, it may be subject to an accumulated earnings tax of 38.6%." This 38.6% would certainly exceed any ordinary income tax (now capital gains tax under the newest law, I think) that the shareholder would pay on the dividend.
Also, if memory severs, wasn't MSFT getting hit with a shareholder suit to force it to pay dividends?
[FN-1] IRS Publication 542, Accumulated Earnings Tax, http://www.irs.gov/pub/irs-pdf/p542.pdf
See also:
Open Letter to Bill Gates, http://www.cptech.org/ms/rn2bg20020104dividend.ht
An update from our friends at CCH, http://www.toolkit.cch.com/text/P12_4785.asp
Foo
You are correct that Bill Gates is not the CEO. That means he is not officially responsible for running the company.
.doc format preserved their monopoly for many years. Now it will hurt their ability to keep the market.
However, Bill Gates is the Chairmain of the Board. The Board of Directors are elected by the stockholders to represent the stockholders interests. All decisions that relate to issuing shares and paying dividends are handled by the Board. As Chairman, Bill Gates is very influential in any decision about paying dividends. The Board could declare a dividend while the company is losing money, which the a responsible CEO would normally recommend against doing.
Microsoft is about to die. Bill Gates knows this. Most of his "wealth" is due to the value of his Microsoft stock. MS has $40 billion in cash. Bill Gates needs to transfer as much of that money from Microsoft into his own pocket. Paying dividends is one of the more obvious methods to accomplish this.
Paying dividends will also keep the price of MS stock higher than it would be if MS did not pay dividends. The stock has been dropping steadily since Jan 2000. It is unlikely that MS stock will ever start climbing again. But the idea that large dividends will be paid regularly will cause many people to buy and hold the stock even as MS dies.
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Reasons I believe MS will die:
1. MS has diversified. Most of the divisions lose money. The server software breaks even. Almost all profit comes from 2 products: MsWindows and MsOffice. Without these products, the company will need to live off its savings. IIRC, MS burns $10 billion per year. So MS could last 4 years if they did not pay dividends. They can also trim costs to last longer. I believe moving jobs to India is being done for this reason.
2. MsOffice is under atttack from OpenOffice and the supported proprietary versions. Many businesses have already converted, and many others are evaluating their options. The migration is building momentum. As more companies migrate away from MsOffice, more companies will need to transfer files in formats that the previously migrated companies can read. The proprietary MS
3. MS has never owned the server OS market. They have dominated the desktop market. 12% use Macs. 1% use "other". That means MsWindows has maintained 87%. Much of the reason to use MsWindows is to be able to use MsOffice. That is handled above; other reasons to believe MsWindows will die are below.
- Linux is gaining marketshare. It has several advantages. Its biggest advantage is mindshare among computer gurus. The GUI has become usable by the public. Computer gurus now install Linux on desktops for their friends and family, because they have less worries about viruses and crashes. Now the big problem is the availability of applications. The two biggest categories are commercial software, such as Photoshop and Lotus Notes, and games for the home consumer.
- Adobe is porting Photoshop to Mac OSX. Porting from OSX to Linux should be trivial. But most graphics professionals use Macs, so whether PS is available for Linux does not affect the corporate market much.
- IBM claims to be supporting Linux, but their most widely used product has not been ported. I am referring to the Notes client. (The Domino server was ported several years ago.) Notes is the only email/groupware/collaboration product to match corporate marketshare with MsExchange and MsOutlook. For many of the Fortune 500 to migrate from MsWindows to Linux desktops, they need the Lotus Notes client to be available on Linux. If IBM were truly commited to Linux, they would already have ported their software products. Ask them when the Lotus Notes client for Linux will be available.
- The
I spend my life entertaining my brain.
All that money and _nothing_ to buy :-)
:-)
MS can't touch anything computer related because tada! instant anti-trust case. They can't just buy into another industry without tada! instant anti-trust case (using monopoly profits to buy into an industry isn't allowed.)
Leave it in the bank? No way. Should the share price drop too far having a huge wad of money in the bank allows a hostile, leveraged buyout to be attempted. In addition share holders will start complaining that the money isn't being used to best advantage.
Looks like a dividend is the only option.
Unfortunately MS is going to face the same problem next year. They are too big for the market
I would not want to invest in M$. Microsoft has about $46 billion in cash apparently, but they also have more than 10 billion shares out there trading at a wee bit over $26 bux. This means if they liquidated their whole nest egg that they could not even offer a 2% rate of return.
Furthermore they have precious little growth opportunities left. Anyone of us can do a straw pole... who is planning on upgrading their OS or M$ office suite any time soon?
The computer world has been filled with random fads that generally crash and burn at a bewildering rate. Why should Microsoft be different.
It might take years before Opensource software makes a real dent in the mass market - but it is inevitable that this paradigm shit will take place. When it happens M$ will probably not have a revenue model left and that will be the end of them.
Personally I beleive there will still be opportunities for commercial software but I feel any opportunities will not likely include operating systems and system software. I don't think these opportunities will include office suites either.
So pass the popcorn because the show will be interesting! I think the future is clear, yet I will admit that the time line is rather fuzzy.
You're more than correct. It really isn't for his pocket. Why do you think ms hasn't released any real dividends all these years, 8 cents per share is nothing. It's because of the enormous stake Bill has in ms. he's got near 12% of all outstanding shares. Thus, if he releases dividends, 12% goes straight to him, out of the equity of the company, to be taxed at 40%ish by the federal government. He's not an idiot, this proposition would result in Bill having to pay close to $500 million more in taxes. Why would he want to do that when the money could be better spent within the company's equity.
;)
It's really quite a shock to hear this, but heck I'll be happy, I've got 400 shares myself.
If so, than we can patent following business model:
hany
Nope, that's not PR.
PR is what Walkers are doing to a friends 9 year old nephew... they've said they'll buy a dialysis machine for her.
If she can get her weight in crisp packets.
WTF? If they can afford to buy it, then they should be buying it, however many crisp packets she can get together, instead of leaving the family wondering weather they'll get the packets in time.
If you think the greatest issue here is the money given back to the shareholders or Bill Gates netting a large share, you are very narrow minded. If you bother to read between the lines, or specifically read the buyout line, you might come to realise that the biggest risk is not in where the money goes to or comes from, but how Microsoft is benefitting (and it's not some consumer muddle about freeing up $46 billion). If Microsoft exercises a buyout, they will reduce much of the requirement for oversight!
In case you missed it, that means that they will be able to pursue all sorts of "fun" strategies that would have undesirable long term affects. Personally, I wouldn't be surprised if legal threatening developed greater strength and market strategy became more aggressive.
Of course, this could be a leak to inflate stock-value, but lord only knows why they would want to do that...unless an insider wanted to prevent the above.
The silliest thoughts I have....
"Yeah...it was the numbers that were irrational, not the murderous cult of vegetarians...." -- Hippasus of Metapontum
However just within the last couple weeks they bought the company that made RAV AV and trashed it. Why?.
Because they recognized that with this product customers could make a file/email server that was not only immune to MS viruses but could clean them up for the feeble MS machines on the network as well. They saw the value in that serice and thus the danger so... slash and burn baby.
When a company at the top of the pile behaves in this way it says A LOT about the culture/character of the company and distain is to be expected.
People invest in dividends for residual income. Not only that, it is real money that gets deposited in your account(s). A stock on a fun ride up is just theoretical gain until you sell it.
Most dividends are pegged to earnings, not stock price. Which means if the stock price declines, the yield of the dividend goes up relative to the stock price. Which creates buying pressure, and helps stabilize a decline in stock prices.
Because dividends are real money, they can't be 'faked' like balance sheet statements using uncollected sales numbers. And because of the dividend tax cuts, companies can't use the (bogus even before) argument double taxation as a reason for not paying out a dividend.
A company paying a healthy and regular dividend is, more than likely, a healthy company.
Money != quality. And I think one should compare the earned amounts on logarithmic scale. Lets see, log_10(100000) = 5 so I guess BillG is 5 times better businessman than you're. Of course, if you select lower base for that logarithm, the multiplier gets larger but it should stay below 100 anyway.
The reason I believe a logarithmic scale should be used is that once you've X dollars, it much easier to invest that money to get X*2 dollars, after you invest that, you have (X*2)*2 dollars instead of (X*2)+X dollars, and so on and so on...
The only thing that I have to wonder is how come BillG only needs to invest on MSFT and it just happens to become largest corporation of all? Pure luck?
So, BillG gets 1.18 billion dollars in dividend - but what does that really mean? He's soon 50 years old and, lets face it, he'll probably live for another 30 years. If he didn't have any other money and he had to live with that money for the rest of his life you could spend only 107688 dollars per day ($1.18e9/30/365.25). I could live with that, but let's remember that that's only one diviend and not his whole wealth!
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