Thursday, September 23, 2010

Another Micro, Soft Dividend Increase

By Eric Jackson
RealMoney Contributor

9/23/2010 1:30 PM EDT
Click here for more stories by Eric Jackson

Microsoft (MSFT - commentary - Trade Now) investors got very excited last week after the company leaked the news Bloomberg that it was going to raise additional debt in order to fund an increased dividend. In the two days after the story ran, Microsoft's shares jumped 6%.

The hope of many investors, including me, was that Microsoft was going to announce an enormous increase to its quarterly dividend, which would then cause non-investors to sit up and take notice of just how cheap "Mr. Softee" has become -- despite the fact that it is printing cash at a rate that would make the Fed blush.

I had been hoping that Microsoft would double its dividend, and, indeed, that's what I've been pushing for the company to do since this past summer when I filed a shareholder resolution on the subject. Shareholders will have the opportunity to vote on that resolution at the company's annual meeting this November.

But instead of a double-down, we found out after Tuesday's close that Microsoft would increase its regular dividend by only 23%. The company also announced that it would raise $6 billion in debt and do an unspecified amount of stock buybacks in the future.

It wasn't what the market wanted to hear and the stock has fallen 3% since Tuesday's close. The dividend increase was better than a stick in the eye for investors, but it was about as exciting as kissing your sister.

The decision shows Microsoft's inherent conservatism. The company took its time getting comfortable with doing a dividend in the first place. Then, it took even longer for the company to accept the idea of raising debt by using its bullet-proof, triple-A balance sheet. When Microsoft increased its dividend in the past, it's generally been a 10% bump. The company probably believes a 23% increase is akin to living on the edge. Hardly.


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