Microsoft to Give $32 Billion to Shareholders

After paying billions to settle lawsuits around the world, Microsoft Corp. bought a measure of peace from its own shareholders Tuesday with a one-time dividend totaling $32 billion -- the largest in history.

The $3-per-share payout aims to blunt investor criticism that the world’s largest software maker was sitting on a cash hoard of $56 billion.

Microsoft also plans to double its regular dividend to 8 cents a quarter and buy back $30 billion worth of stock over the next four years.

“It’s a pleasant surprise,” said Chuck Jones, an analyst with Stein Roe Investment Counsel, which owns Microsoft stock.

The $32 billion is a record. But there have been bigger per-share payouts -- Metro-Goldwyn-Mayer Inc., for instance, paid $8 per share in May.

Returning that amount of cash to shareholders speaks volumes about Microsoft’s growth from a start-up that plowed profit back into product development. Analysts said the payout and dividend boost could pressure other big companies.

The industrial companies in the Standard & Poor’s 500 index have a collective $555 billion on hand, more than double their 1999 holdings.

“It’s the same as my mother keeps saying, ‘I can’t keep it all in the bank,’ ” said S&P; analyst Howard Silverblatt. “Companies are going to have to decide, the same way Microsoft did, and some of them are going to come to the same conclusion.”

Microsoft Chairman Bill Gates -- the company’s largest shareholder -- and Chief Executive Steve Ballmer would be the largest individual beneficiaries of the special dividend, which requires shareholder approval. Gates said he would donate his $3-billion payout to his charitable Gates Foundation.

Asked about Ballmer’s plans for his $1.2-billion windfall, a Microsoft spokeswoman said: “Steve actively supports a number of charitable organizations and issues, primarily in the areas of health and education, but he prefers to keep his charitable activities private.”

The special dividend would be paid Dec. 2 to shareholders of record on Nov. 17.

Tuesday’s announcement clears the air for Microsoft’s quarterly earnings report and forecast Thursday, said Sanford C. Bernstein analyst Charles Di Bona. “People have been obsessing about this cash,” he said. “Now they can focus on the fact that operationally, this company is doing well.”

Microsoft’s regular dividend will grow from 16 cents a share a year to 32 cents. That’s 1.1% of the stock price, making Microsoft the 10th-most-generous dividend payer in the S&P; 500.

The stock buyback program also is among the largest ever announced. But it’s a modest adjustment from the $6 billion Microsoft already spends annually on its own shares. Some of the purchases are needed to offset the dilution when employees exercise stock options.

Microsoft shares approached $30 in after-hours trading Tuesday, after closing up 37 cents at $28.32 on Nasdaq.

Microsoft executives said the steps were made possible by progress on the legal front, including an appeals court approval of the company’s antitrust settlement with the Justice Department. The Redmond, Wash., company also has settled suits by Time Warner Inc. and Sun Microsystems Inc. and won or settled most of the customer class-action suits against it.

European regulators recently ordered the company to change some of its practices. That case is on appeal and the penalty “will either remain where it is or it will get better,” said Microsoft General Counsel Brad Smith.

Its legal woes largely behind it, Microsoft faced increasing pressure to spend the cash piling up in its coffers.

The company generated $13 billion in cash in the first nine months of its current fiscal year and had $56 billion in cash and short-term investments as of March. The company’s growth rate has fallen and its stock price has stagnated, adding to shareholder pressure. Ballmer said that even with more generous dividends, Microsoft would continue to invest in new products.

“When we look out over the next several years,” Ballmer said, “I’m confident we have some of the greatest dollar growth prospects of any company in the world.”