Abstract

The case brings to the fore Microsoft's dividend policy. Founded in 1975, the company declared cash dividends for the first time in 2003 and continued its returns to the shareholders both in the form of cash dividends and share repurchases after that. In 2010, the company decided to raise a debt in order to pay the dividends and to repurchase shares while avoiding an adverse impact on its debt rating. The case deals with the dividend behavior of Microsoft Corporation and the fact that that it was not averse to taking a debt in order to pay dividends despite having a huge cash surplus.

Learning Objectives

The case is structured to achieve the following Learning Objectives:

• Understand the usage of cash after Profit after tax (PAT).
• Understand the different ways of Repurchase of Shares.
• Analyze which is the better way to ensure returns to a shareholder - through cash dividends or repurchase of shares, or both?
• Discuss and debate the pros and cons of the dividend policy in comparison to cash dividend and repurchase.

Keywords

Dividend, Repurchase, Buyback, Open Market, Tender Offer, Dutch Auction, Targeted Repurchase, Green Mail, Special Dividends, Debt, Rating, Dividend Payout Ratio, Earning Per Share