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Yesterday, the company Gates cofounded, Microsoft, announced the biggest special one-time dividend in the history of corporate America. The software giant, which dominates an industry not known for dividends, says it will give shareholders $3 back per share as a special payout. "It's the biggest dividend ever," says Howard Silverblatt, equity market analyst for Standard & Poor's and an expert on corporate dividend policies. "It's beyond big—it's enormous."
All told, the dividend will amount to $32 billion in wealth that the company is transferring back to shareholders and injecting into the economy, just in time for Christmas.
The dividend will be payable on December 2, to shareholders of record as of November 17. Of course, Gates himself, as owner of more than 1.1 billion shares of Microsoft stock, would stand to reap more than $3 billion in this move. But Gates, chairman of the Redmond, Wash., firm, said he would donate all of the proceeds to charity, namely the Bill & Melinda Gates Foundation.
The special payout is only one part of a three-pronged strategy to address the company's mounting cash position. In recent months and years, critics have complained that Microsoft was not making good use of its growing stockpile of cash, which now exceeds $56 billion.
In addition to this payout, the company said it will effectively double its normal dividend payments, to around 8 cents a share per quarter, or 32 cents a share annually. That amounts to an additional $3.5 billion in cash. Finally, the company is pledging to buy back up to $30 billion worth of its stock, which has been languishing in recent years. Over the past five years, for example, Microsoft's stock has lost about 8.4 percent a year.
Even after spending all this money over the next several years, Microsoft is still expected to have around $40 billion in cash on hand. Morningstar analyst Joseph Beaulieu estimates that Microsoft generates more than $1 billion in cash from its basic operations every month. "We think that this is great news for shareholders," said Beaulieu, noting that "this action strengthens our conviction that Microsoft is a shareholder-friendly company."
As a result of the move, analysts now believe that other tech companies will feel pressure to follow Microsoft's lead and begin paying dividends. This is especially true if tech investors start to expect dividend payouts. This means that Microsoft has indirectly accomplished something that it's very good at: pressuring the competition.
Shares of the software giant were up more than 3 percent in early morning trading Wednesday, helping to push the broad stock market up early in the session.
