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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."
This is the main way of funnelling profits from your company account to your personal account in Railroad Tycoon.
Bite the hand.
If only I'd bought that Microsoft stock when I was born.
MS is paying money to it's loyal investors because Bill Gates is greedy.
Had MS not payed out, the summary would have been:
MS is not paying out money to it's loyal investors because Bill Gates is greedy.
Come on, people - I _highly doubt_ Bill really cares whether he makes a hundred million or a billion dollars. If anything, it'd probably be more of a hastle for him, with all the extra taxes. Besides, is he even the guy that makes this decision anymore? He's not CEO. Perhaps an accountain could help me out on this one?
--
http://nemilar.net - Not your grandmother's soup kitchen
1) Buy SCO and read their evil plans before making them all walk the plank.
2) Put it all in a massive pool and swim in it.
3) Buy out every cell phone company in your state and turn them off *just to stop the stupid ringtones*.
4) Spend the rest on pr0n.
Beep beep.
Guess that's the short end of the stick, huh.
I wish there were more situations where I had so much money I had to give it away just to keep it managable.
Why shouldn't Gates earn dividends on his shares? His dividend payment would be proportionate to the amount of shares he owns.
I guess certain people have to find any excuse to attack the man.
-- You see, there would be these conclusions that you could jump to
It'd be nice to see dividends once again be the main way most people expect to make money with stocks. Especially tech stocks. Focusing on the worth and stability of a company is a good thing. IMO, building money over time through dividends is more practical (read: safer) for small time investors than speculation.
If so, wouldn't bill get those billions without having to hand a few hundred million over to Uncle Sam?
Yikes! there is a better way to reduce that cash pile. Give away 10 billion to people on the planet.6billion/10billion=1.6$ so, microsoft should starts giving out 1.6$ to everyone. That way, they may even start to love Bill Gates. wait no, considering their crappy software costs ten fold more...eh
secure the damn OS.
Thanks.
...it's a dollar a share. It's a lot of money for Gates because he owns billions of Microsoft shares. But for your average Microsoft stockholder it's only a fraction of a fraction as much. Nobody's "buying off" anyone. Dividends happen not infrequently, and as it happens Microsoft had a lot of excess cash to divide.
"All it takes to fly is to hurl yourself at the ground... and miss." - Douglas Adams
What profits
20....15...10...5...submit
Now that there is no dividend tax and Microsoft is no longer a growth company, there isn't any good reason not to pay the stockholders. When there was a dividend tax, Microsoft could argue that by keeping the money, they could put it to more efficient use to build stockholder value in terms of share value, rather then giving some of it to the stockholder, and some of it for the gov't. The other point is, that Microsoft is done growing by leaps and bounds. They don't need any more capital to grow, or smooth out cashflow issues, or any other standard business reason why a company normally keeps money cash on hand.
I believe the shareholders are starting to demand it, as that's the one way the shareholders can get their money out, without having the price go up or down. It's a sign that Microsoft is turning into an old school established company, like so many others, rather then being a hot commodity stock that creates value, because the company keeps growing, and building up more value.
Kirby
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.
Had MS not paid out a dividend they would have retained (allowing for various tax differences in what they do with the money) this much more as free cash (i.e., capital), hence the firm would increase in value via an increase in the share price.
To realise this gain in cash, investors would just sell shares. Or even, to maintain parity, MS would issue shares to existing shareholders pro rata who could then sell them if they wished.
The fact there is a dividend or not matters little unless we go into the intricies of corporate finance theory.
--
FreeNET user? Comfortable with the adverse selection?
No, dividends are taxed at the (now reduced) capital gains rate, instead of the ordinary income rate.
Now I have to go find my Railroad Tycoon CD. Now thanks to you, my three-day weekend has just became drastically shorter.
There's exactly two legitimate bases for stock valuations: one is dividends, the other is a cycle of systematic buy-backs and new issues.
Absent either of those two options, what have you got? You've got someone saying to the market "Hey, loan us some money. We never intend to repay, but perhaps you can sell our note to someone else for a profit."
Bill's waited antil after the anti-trust case, but since he's ignoring it anyway, he's not likely to give a shit.
Good move, Bill - you are now, officially, a Robber Baron
oh brave new world, that has such people in it!
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 "$1 per share" stuff come from? All the reports I've seen today speculate about an increase from 8 to 26 cents per share, max.
But then, Slashdot could only troll about Gates taking 2 billion, not 10 billion. I'm sure it was just an editorial typo. Heh.
-- Slashdot: When Public Access TV Says "No"
I'd say the factors behind this are:
1) M$ had an inordinate amount of money stashed away, pushing the limits of accounting rules for contingencies, earmarks for future projects, etc., but with being threatened with breakup it's hard to argue with what all contingencies they may have needed to consider.
2) With settlement of the suit, that excuse went away. They have to pay out a dividend because the IRS says so.
3) They held out (wink, wink IRS) until the Republicans reduced the dividend tax.
4) Billg is probably just as glad about it anyway so he doesn't have to sell more stock for whatever reason he was selling it, presumably partially at least to fund his charities.
rd
Dunno about the others, but I doubt Microsoft can afford to buy IBM. IBM reported $20.1 billion in revenue for the first quarter. That puts it at more than $80 billion in revenue for the calendar year.
By comparison, Microsoft's revenue for the quarter was $7.1 billion.
-- Slashdot: When Public Access TV Says "No"
What Microsoft should really do is host a T-Shirt design contest, where the winner gets three copies of the shirt they designed and a $10 billion credit at ThinkGeek.
Microsoft is made up of a load of long-timers who have made enough money through stock options that they don't really have to work and the newcomers whose stock options have been underwater for several years.
Without stock options (and the money generated with a rising stock price) neither the money or the work environment is much to write home about. Neither the old-timers or newcomers are particularly motivated and most of the "innovation" goes on by buying smaller companies.
Issuing a dividend is one way to pump the stock price up and thus motivate some employees.
Yea yea, I'll probably be modded flamebait or troll but... come on! ANYTHING MS does is immediately evil? Look, for the first time ever last quarter they paid out 8 cents a share dividend, because it made financial sense. This time they have looked and, again, it made good solid financial sense to pay a dividend. It's good for the stockholders, it's good for the economy and, yea, it's good for Gates and other execs (because they believe enough in their company that they own shares in it too). How is it even remotely possible in any way, shape or form that MS giving it's shareholders money is anything but good for everyone? Indirectly, even non-stockholders benefit (think about it).
With Windows you can get Money.
With Linux you can get Enlightenment.
Really.
Or are you just posing rhetorical questions? Of course, everything that MS does is evil and has to be scrutinized. After all, they are THE enemy.
Hmm i guess cmdr Taco. I have a big visual studio .net banner right on top of the story :)
I'd say it would be spent by shareholders in a more direct way than the money is being used by being invested in liquid investments by M$, but even in liquid investments the money was funding short term loans of some type.
On the other hand, maybe 40% go to Gates, Ballmer, Allen and a few other billionaires. In at least Gates case, he has been tending to donate his money overseas, so the full $10 bn definitely won't be spent here. A lot of his non-health donations I think tend to get spent back on M$ products and PC's, so some of his donations will end up back at M$.
Also read today that over half of us non-billionares are saying in polls that they're spending tax refunds on paying bills, which isn't the new purchases that Republicans were looking for. On the other hand, in my opinion, paying bills frees up the credit limit to buy more anyway. Six of one, half a dozen of another..
rd
This may make the stock rise - too much cash on hand is often seen as a negative by analysts.
So I'm going to get $1 for the one share of MSFT I own! Wow, now I only lost $24.34 to MSFT!!!
hmm... for fun I enjoy launching DDoS attacks against 127.87.42.5
How long do you have to ordinarily hold a stock before receiving a dividend? Could I buy M$ 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 ($100,000/year) for 10 years and make Windows the best OS ever!
There will be an interval of at least four years before your Enlightenment can progress to the next level, and some even claim that the a higher level of Enlightenment than already attained will never come to fruition.
10 PRINT CHR$(205.5+RND(1)); : GOTO 10
I thought the real point behind having ownership in a company was getting a slice of the company's profits. Then the buying and selling of shares is based on the expectations of distributions. But double taxation of such distributions discourage companies from distributing profits, instead using those profits to fuel growth. At that point, the share price can no longer ride on the future expectation of distributions. It can only ride on the expectation that someone else will buy the stock from you for more than you paid for it. And then it seems that everyone only values how much the company grows, not how much the company is profitable. We know from recent history that this is a bad thing.
sorry but 640K$ should be enough for everyone...
--- Metamoderating abusive downgraders since my 300th post.
> No, he did not play by the rules. He broke the law -- the courts have so ruled.
Umm. So the legal system have the final say in what is right and wrong?
Yet every week there are people here shouting how wrong and unfair DMCA/outragous legal settlements/patent cases are.
So;
We agree with legal rulings = The legal system is clearly the last word in what is right.
We don't like legal rulings = The legal system is corrupt and change is needed now!
The surprise isn't how often we make bad choices; the surprise is how seldom they defeat us.
Hence the reason it was called BASIC - Bill's Attempt to Seize Industry Control. That other acronym was just a marketing ploy.
.unsigged
I think we can rule out Microsoft being "debt-laden", but it still sheds an interesting light on how finanicial people with a tech background will be looking at this move: The growth days are over, and from here on, it is stagnation.
(Disclaimer: Everything I ever needed to know I learned from Slashdot)
Over 600 million each donated to child health, and HIV/AIDS/TB. As staggering as the absolute magnitude of those numbers are, even in percentage terms they are quite remarkable. Given his total career earnings of, say, $50 billion or so (to date), this represents more than 1% to each of those causes.
To put it in perspective, do you know any other moderately well off computer geek, who may make $3 million in their career, pledging 1% ($30,000) to each of those causes? He's also indicated that global HIV/AIDS/health is a top priority, so expect him to give a lot more in that area before he's done.
Slashdot is entertaining like pro wrestling is entertaining
Uh, the IRS doesn't require a corporation to pay out dividends...
h apter11.htm
I couldn't find any of the news article from the past that I have read that stated that the IRS was looking at M$'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
The economy is being blown out. The value of everything is dropping vis a vis what the current manipulated artificial currencies say they are worth. Sitting on daily de-valuing cash is pointless, they are taking the cash and running with it NOW before it's worth much less, that cash can be converted to more wealth-preserving assets. In a month or three, perhaps that same valuation in forms of digits would be worth much less when it's compared to tangibles. This is what the real high rollers around the planet are doing, so it's not surprising that microsoft management would be doing it. that their smaller shareholders get a piece of it they can't avoid, that's out of their hands, but the larger holders want OUT, they want to get into safer things now. This is a serious economic clue, of much more worth than most nightly business reports puffery.
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.
---
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.
I donate 2% of my salary to charities; my boss convinced me it was the right thing to do (he has been doing it for years). I may not make millions of dollars per year but does that matter?
NOt exactly the same thing: the lower the income, the more that 1% matters. To bring this into perspective, think of a farmer in Asia, that gets about 1000 $US a year. For him, parting with 10 $US is a very big deal. On the other hand, Bill Gates could part with half of his money, and still have left 25 billion that he wouuld have no idea what the fuck to do with.
Sigged!
The Rumors of Microsofts death is GREATLY exagerrated.
.net and it's VERY cool. Generic hardware and a generic OS leads to managed code run-times like .net and Java. The .net effort is really a safety gap in case the world DOES fall in and the Windows hegemony is busted by open source.
No other company is in better control of it's own potential destiny than Microsoft. The declining stock price is due to the down performance of the market as a whole.
True, Linux is a serious thorn in Microsofts side. It means that they CANNOT charge whatever they like anymore. It means the outrageous price of Microsoft software will stay constant or start to decline. Microsoft's core products are serious cash cows and there are no signs that their core users, business and personal desktops, will be wrenched from their hands anytime soon.
On the applications side, Microsoft still has SERIOUS leads in the scope and usability of their software. In the enterprise area, (documents & email) Microsoft software is a user's dream compared to the nightmarish offerings from IBM. True, Microsoft doesn't scale as well, but they continuously make significant inroads.
Linux & IBM still has a lot of work to make their enterprise applications supplant all the functionalities available from Microsoft.
Even in a commoditized market, don't count Microsoft out. They clawed their way to dominance through cut-throat business practices and frankly CRAPPY software. Their recent work has mostly been excellent. Their developer tools are the Roles-Royce's of the computer world. No other company bends so far backwards to enable their developer community.
As far as Mac is concerned, they hold strong in the niche market of Graphics, Publishing & Film. They hold a 3% market-share of new PCs. There machines are now VERY excellent with a unix-based OS but they are still somewhat pricey. I can see them making significant inroads into scientific computing. However, don't expect the world to beat down Apple's doors because they have a Unix-OS and a VERY pretty user shell. I expect Apple to pick up market share now, but I never expect that they will make a significant dent into either Windows or Linux.
On the off-chance that the OS becomes COMPLETELY commoditized, MS DOES have a plan. It's called
-------- -------- Support Wesley Clark for president!!!
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
We were making money during the previous administration, and we had balanced the budget. The new administration saw a treasury full of loot, and raided it for its own gain. It threw you a couple hundred dollars so you could say they helped you, too, but it threw Bill Gates half a billion on this transaction alone.
Taxes in this country, despite the progressive income tax, are overall regressive, because of shelters and the effects of consumption taxes and fees. These same guys are seriously looking at trying the Flat Tax, next. At which point they may end up being paid a subsidy by the government to be richer than God.
We were robbed.
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.
Yeah. And this was achieved not by moderating government spending, but by hiking up the taxes. Robbery spotted.
Believe me, I am in no way totally satisfied with the current administration in economic terms, but the previous administration's "balance the budget by pillaging the people" sat worse with me.
A pure flat tax would eliminate deductions and, by extension, shelters, that you so complain about in the lines before the above quote. Now, a "flat tax" that allows a few select exemptions (like on investments) could be a different story. But condeming the Flat Tax totally is ill-advised. A true implementation would eliminate many of the very things you singled out. A half-assed implementation, however, could well be damaging as you describe. The best we can probably hope for is a not-too-badly-compromised flat tax, which hopefully would retain most of the core benefits. You're way off in thinking the flat tax is a boon for corporations, though. It's the opposite. And that's why it's not happening with any rapid speed.
What I find funny is that the Republicans have been criticized for backing off of tax reform and backing away from the flat tax idea - criticized from the left. And the criticism is totally fair. I'd like to see the administration do more than just pay lip service to the idea. The tax cut is nice, but basically is just a step in undoing the taxation of the last administration. It's not a solution, it's a step. I want to see motion towards a solution.
If so, than we can patent following business model:
hany
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
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.
that this is caused by President Bush's tax cut for the common man on Dividend Taxes? You think this would have happened without that gift from the President? This has nothing to do with stock price, it has to do with tax rate. It is now cheapest for Bill Gates (and let's not forget all the other Microsoft Billionaires) to receive their pay in dividends. So remember when your kids no longer have band practice in school, and you have no healthcare that it was simply that we needed to provide tax relief for the common man, like Ballmer and Gates.