Microsoft to Pay Its First Dividend
Microsoft Corp. said Thursday that it would spread some of its $43-billion cash hoard through its first annual dividend, paying out a modest 16 cents a share to stockholders in March.
Although some investors had pressed for a dividend, the announcement failed to take the edge off Microsoft’s warning after markets closed that revenue for the next year and a half would be hurt by slowing sales growth for money-losing Xbox home entertainment systems and the firm’s MSN Internet service.
Microsoft shares fell $1.72, or 3.1%, to $53.63 in after-hours trading after a 92-cent dip in Nasdaq trading to $55.35.
The Redmond, Wash., software giant said it now expects revenue in its fiscal year ending June 30 of $31.9 billion to $32.1 billion, down from the $32.2 billion to $32.6 billion it forecast last quarter.
Looking ahead, executives said, it would be tough to keep posting big gains in revenue, in part because so many large customers have shifted to multiyear contracts that guarantee them less-expensive upgrades.
To meet expectations for its fiscal year ending in mid-2004, “we’re going to have to have a very good year booking new business, and we’re going to have to have a bit of help from the economy,” said Chief Financial Officer John Connors.
That disappointed investors hoping for an improved outlook.
“The market was anticipating it might get better,” said SG Cowen analyst Drew Brosseau, who owns no Microsoft shares and whose firm does no business with Microsoft. He rates the stock “market perform.”
The cautious statements came as Microsoft posted profit of $2.55 billion, or 47 cents a share, in the quarter ended Dec. 31. That’s 12% higher than the $2.28 billion, or 41 cents, it earned a year earlier. Sales rose 10% to a record $8.54 billion.
The latest profit figure includes a $210-million charge for legal costs including the proposed settlement of a class-action antitrust lawsuit by California consumers, a $282-million charge for impaired investments and a $126-million gain from a favorable tax ruling.
The decision to pay a dividend was motivated more by pending resolutions of some of the biggest lawsuits against the firm than by President Bush’s proposed end to taxes on dividends, company executives said.
The payout, which will net Microsoft Chairman Bill Gates an extra $100 million yearly, is “a long-term commitment to shareholders” that could well increase over time, Connors said.
“As we go forward, we will look at what the legal environment looks like, what R&D; [expenses] look like,” Connors said. “You could probably characterize this as a ‘starter’ dividend.” The payment will cost Microsoft about $860 million a year.
At the stock’s price of $55.35 before the announcement, the dividend gives Microsoft shares an annualized yield of just 0.3%, compared with a weighted average of 2.3% for the stocks in the Dow Jones industrial average.
Most tech companies pay no dividends, preferring to invest in research and to buy back shares that would get diluted when employees exercise options.
If Microsoft raises its payout, it could satisfy some shareholders who fear that profit, and the stock, are slowing from their historic growth rates. But that also could dim the stock’s appeal among investors who focus solely on high-growth issues.
As it stands, “it’s a token dividend,” said Arnold Kaufman, editor of Standard & Poor’s Outlook newsletter in New York.
Microsoft also said it would split its stock 2 for 1 for the first time in nearly four years and the fifth time overall. That would turn the dividend into 8 cents annually for each new share.
Connors told investors and analysts in a conference call that although the firm is very optimistic about its long-term prospects, the economy is continuing to take a toll on sales for now.
Times staff writer Tom Petruno contributed to this report.
