Capital Markets

Microsoft Launches Dividend Surge

In the wake of the software giant’s $32-billion payout, Intel, Manpower Inc., and Estee Lauder Cos. also decide to pad shareholder’s pockets.
Stephen TaubNovember 12, 2004

Two of the world’s largest tech companies – Microsoft and Intel – announced gargantuan dividend awards in the past week, extending a trend among companies to increase their cash payouts to investors.

By far the most impressive one was announced by Microsoft Corp., which said its shareholders approved a $3 per share dividend, which will cost the software giant a total of $32 billion. The special dividend is payable on Dec. 2 for shareholders of record on Nov. 17.

Microsoft had announced in July that it planned to award the one-time dividend, as well as doubling its annual dividend and a four-year share buyback plan. This week, Microsoft shareholders approved changes to its stock-based employee-compensation plans that would maintain the value of stock options and awards, enabling the company to proceed with the special dividend, Reuters explains.

Also this week, Intel Corp. announced that its board approved a doubling of the quarterly cash dividend to 8 cents per share. The board also authorized the repurchase of an added 500 million shares of stock under the company’s ongoing stock-repurchase program.

Until the popping of the stock bubble at the outset of the new millennium, dividends were not very popular among tech companies, which preferred to use their cash to reinvest in their fledgling business. Investors didn’t mind, since tech stocks were surging exponentially.

For a number of reasons, however, the attitude towards dividends has been changing. For one thing, stock returns have come way down, and investors who have become more conservative are looking for more of a sure thing. Further, in May 2003, Congress reduced the top tax rate on dividends, making them more appealing to shareholders.

Meanwhile, a number of companies, including mature tech companies, find themselves with huge caches of cash. For example, Microsoft had more than $60 billion in cash and short-term investments in the most recently reported quarter while Intel had $16 billion in cash and short-term investments. Barron’s reported earlier this week that the cash balance among companies in the S&P 500 was $590 billion, up from $261 billion five years ago.

Tech companies, however, are not the only ones announcing huge dividends of late. Manpower Inc., the employment-services firm, said its board agreed to double its dividend to 20 cents per share. The board also approved a share-repurchase program. The Estee Lauder Cos. Inc. also plans to hike its dividend by 33 percent.

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