Dividend Talk Lifts Microsoft Shares

With $46 billion in cash and an investor base increasingly clamoring for some kind of reward, Microsoft Corp. faces mounting pressure to share the wealth by increasing its dividend payouts or buying back more of its shares, analysts said Monday.

The stock, which has trailed the Nasdaq market overall this year, got a lift Monday in part on rumors the company would pay out dividends worth $10 billion in all.

French newspaper Les Echos, citing unnamed sources close to discussions at Microsoft, said the company was planning a $10-billion dividend that could be paid out in one payment or spread out over three or four quarters.

Microsoft declined to comment on the report.

The company’s shares gained 92 cents, or 3.5%, to $27.42. They are up 6.1% this year, far behind the 28.8% gain in the Nasdaq composite index. Among other tech giants, Intel Corp. is up 47% this year, and Dell Computer is up 24%.

A $10-billion dividend would amount to about $1 a share and would represent an annualized yield of about 3.6% on Microsoft stock at Monday’s closing price.

Some analysts discounted the Les Echos report, but said the software giant appears increasingly willing to make a dent in its growing cash hoard.

Microsoft could increase its current yearly dividend of 8 cents a share, issue a special dividend or increase its share buybacks, analysts said.

“Our view is that it will be a combination of buying back shares and an increase in the dividend,” said Eric Upin, analyst at Wells Fargo Securities.

Most analysts agreed that Microsoft is unlikely to pay out a special one-time dividend.

The increased talk of dividends comes as the personal computer industry matures, resulting in slower growth for Microsoft.

The firm is making investments in new businesses, but not enough to slow growth in its cash hoard or generate significant returns.

The company declared its first dividend six months ago, marking a departure from its long-held view that its investors would benefit most if any excess cash were reinvested in the company for growth.

At the time, Chief Financial Officer John Connors described the 8-cents-a-share payout as a “starter dividend,” hinting that it could be increased in the future.

At a Sanford C. Bernstein & Co. investment conference last month, Connors told the audience that “a buyback or some combination of a dividend and buyback is a possibility.”

The analyst hosting the event, Charles Di Bona, said a one-time payout was unlikely because it “doesn’t differentiate between long-term shareholders and short-term shareholders,” which would go against Microsoft’s efforts to attract long-term owners of its stock.

Instead, Di Bona noted that the prospect of higher regular dividends “opens up a whole new universe of investors who are income-oriented.”

Some also see the decision to pay out dividends as a sign that Microsoft is becoming a “widows and orphans” stock, a steady and dependable holding for less risk-tolerant investors.