Microsoft's Dividend Policy

Abstract

By early 2004, Microsoft''s cash balance had crossed $50 billion. One persistent investor complaint against Microsoft has been its zero dividend policy. Microsoft has not paid dividends for 17 years. It believes in ploughing money back into its R&D (research and development). In part, due to increasing pressure from shareholders, in 2003 the company declared its first ever dividend for common stock. More recently, Microsoft has announced plans to pay back up to $75 billion of its cash to investors over a period of four years. This includes a one-time special dividend of $30 billion. The case outlines the evolution of Microsoft''s dividend policy and the circumstances leading to the huge dividend payment in July 2004. The case also outlines the possible repercussions of this payment for other tech companies such as Dell, Cisco, and Oracle.

Cash is shareholder's money, so we need to either invest in new opportunities or return it to them.

Steve Ballmer, CEO, Microsoft

Microsoft, the world's number one software company, provided a variety of products and services including the ubiquitous Windows operating systems and Office software suite. The company had expanded into markets such as video game consoles, interactive television, and Internet access. With its core markets maturing, Microsoft was targeting services for growth, looking to transform its software applications into Web-based services for enterprises and consumers. While desktop applications and platforms remained the bread and butter business, Microsoft had moved into video game consoles, enterprise software, computer peripherals, software development tools, and Internet access services.

One of the most profitable companies in the software industry, Microsoft's sustained levels of financial performance had been unmatched. By early 2004, Microsoft's cash balance had crossed $50 billion. One persistent investor complaint against Microsoft was its zero dividend policy. Microsoft had not paid dividends for 17 years. It believed in ploughing the money back in its R&D. In part, due to increasing pressure from shareholders to explore alternatives for its ever-growing cash hoard, in 2003 the company declared its first ever dividend for common stock. The announcement seemed to mark a turning point in Microsoft's financial history. More recently, Microsoft announced plans to pay back up to $65 billion of cash to investors over a period of four years. This included a one-time special dividend of $30 billion.

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        Case Code   FINA011
   Case Length    16 Pages
              Period    1975 - 2004
 Organization     Microsoft Corporation
        Pub Date     2004
Teaching Note    Not Available
     Countries    Global
      Industry    Information Technology (IT)

Issues

Microsoft's Dividend Policy

Microsoft; IBM (International Business Machines Corporation); Bill Gates; Steve Ballmer; HP (Hewlett-Packard); CISCO (Computer Information System Company); Annual dividend; Stock purchase programme; Dividend reinvestment; Form 1099; Buy back; Bill and Melinda Gates Foundation; US Bancorp asset management; Intel; Dividend policy

Please note:

This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.