January 17, 2003
Clinging to its war chest like a deadbolted chastity belt, Microsoft(Nasdaq: MSFT) always scoffed at the idea of paying out a dividend. Until yesterday.
Two months ago, our own Rex Moore argued -- nay, pleaded -- that Microsoft give up some of its booty for the sake of shareholders. At the time, the company argued it wasn't prudent to begin any form of payout program while the gray clouds of legal liabilities loomed overhead. Did anyone really think Microsoft needed a $43 billion umbrella?
Well, those clouds have started to move on, and the company today announced it would finally pay a dividend on common stock. The possibility of an end to the practice of double taxation on dividends has made yields fashionable again. But, let's be frank: This dividend announcement is really just a clever ploy to throw the media hounds off the scent of its lowered fiscal 2003 targets.
Really. Microsoft is now looking to earn between $1.90 and $1.93 a share on revenues of no more than $32.1 billion this year, a bit off Wall Street's consensus of a profit of $1.98 a share on $32.5 billion in revenues. The company also declared a 2-for-1 stock split. Seriously now, when's the last time a company announced a stock split on the heels of news that would normally sink a stock organically?
Man, those Microsoft folks are good. They could've probably thrown a few more curveballs our way, too. Why not reveal that Bill Gates finally caved in on those persistent offers from Playgirl, or that CEO Steve Ballmer has been cast as Denny Terrio's heir-apparent on a Dance Fever revival?
See, the dividend itself is as petty as the news is huge. The $0.16-a-share annual payout on a pre-split basis comes out to a pathetic 0.3% yield. Even the most expense-laden money market fund is laughing at that kind of income distribution.
Do you think it will make a dent in Microsoft's vault? It won't. The company will earn far more interest on its wad of greenbacks than it pays out to investors as part of its new annual dividend policy. It's just a token gesture -- a case of throwing good money at bad news. They're not fooling us!