Updated from 12:43 p.m. EDT
has doubled its dividend didn't do much to help the stock Friday. In recent trading the Redmond, Wash., software giant was up just 37 cents, to $28.21, an increase of 1.3%
Part of the reason the stock didn't get more of a bounce: explanation: Techs are down on
license revenue miss and disappointing news on consumer sentiment.
But there is also a sense that increasing the dividend is a tacit acknowledgment that Microsoft is becoming, well, mature. "There's a perception that Microsoft is becoming an old, slow dog," said sell-side analyst Gene Munster of U.S. Bancorp Piper Jaffray. What's more, even after doubling its dividend to 16 cents a share, Microsoft's yield will still only be about 0.6%, much lower than those of many other mega-cap companies.
There are however, signs that the dividend could go higher.
After calling today's hike "underwhelming" Rick Sherlund of Goldman Sachs said, "We note that this is the regular annual dividend and is likely independent of any special dividend or share repurchase program that may still be announced this year relating to the growing cash position. So stay tuned for possibly more news on this front," Sherlund wrote in a note to investors on Friday. (Goldman has a banking relationship with Microsoft.)
David Hilal of Friedman, Billings, Ramsey, said he too expects a bigger dividend and noted that the company has a cash horde of nearly $50 billion and could afford to pay as much as 56 cents a share, especially now that its legal picture appears brighter.
"We do not believe that MSFT is finished setting its long-term dividend policy, as we expect further increases, particularly when the EU investigation is resolved later this year." A 56-cent dividend would be a yield of 2%, and would put Microsoft in line with its
Dow Jones 30
peers and the dividend-paying companies of the
, he said. (FBRC does not have a banking relationship with Microsoft.)
Friday's surprise announcement is a sign that Microsoft is feeling less threatened by the seemingly endless series of antitrust actions, a factor the company often cited when asked why it held on to so much cash. "Microsoft is pleased with recent progress in resolving a number of legal matters," said a company spokeswoman. "However the company continues to have legal and business exposure on a variety of fronts."
Microsoft this year settled suits with
for $750 million, and
, a small software maker, for $23 million, but still faces some 30 patent suits, as well as antitrust actions by
, the European Union and others.
Meanwhile, Munster, whose company has a banking relationship with Microsoft, and buy-sider Tony Ursillo of Loomis Sayles, said the old dog may have more than a other few tricks up its sleeve
Both note that despite the obvious fact that the company's core businesses -- Windows and Office -- are mature, Microsoft still has plenty of room to grow. Server-side software, the Xbox, business solutions (think CRM) and MSN (think subscription software) are segments the company is pushing hard to grow.
"It's true, Microsoft hasn't made a major acquisition since Great Plains," said Munster. "But it doesn't have to. Why make a blockbuster deal when you have internal businesses that you can still turn?" he said.
Munster added that Microsoft "could be setting a pattern of inching up the dividend on a more regular basis, which is a step in the right direction."
Ursillo, whose $10 billion fund is "nicely long in Microsoft," says that even without a bigger dividend, investors are already getting more for their money than some have noticed. Microsoft, he said, spends roughly half its cash flow on stock buybacks and another 10% on dividends. "Sixty percent of cash flow back is good return," he said.
The company paid out 8 cents a share in fiscal 2003 after declaring its initial dividend in January. The new dividend will be paid Nov. 7 to shareholders of record as of Oct. 17.
The quarterly 4-cent dividend comes out to about $430 million a quarter, given Microsoft's roughly 10.8 billion shares outstanding. That's about a quarter of the $1.9 billion in net income the company recorded in the June 2003 quarter.