Microsoft’s $75 Billion Surprise

Microsoft moved to bestow more cash on investors as part of a plan to share about $75 billion with shareholders over the next four years.

The company announced a quarterly dividend of 8 cents per share, which doubles its annual dividend, and unveiled plans to buy back up to $30 billion of its own stock over the next four years. The board of directors also approved a special one-time
dividend of $3 per share, or $32 billion.

The payout is believed to be the largest cash dividend in U.S. corporate history. During a conference call with analysts Tuesday, Microsoft officials said prior to this announcement, the largest cash dividend was considered to be in the $50 billion to $60 billion range, spread out over five years.

Microsoft, whose market capitalization is about $305 billion, said the plan represented a combined total value to shareholders of up to $75 billion over the next four years, if quarterly dividends continue at the new level.

The huge payout came amid intense speculation in the markets over whether Microsoft would loosen up some of its cash hoard, which was listed at $56.4 billion as of the end of March.

For a company that generates more cash than it knows what to do with each month (about $1 billion), Microsoft’s decision to share more with investors is seen sparking discussion about the company’s evolution from growth to one that is more mature, given its dividend payout plan.

But during a conference call, Microsoft’s CEO, Steve Ballmer, said the company had plenty of growth ahead.

“As I look out over the next several years, with respect to fact that if we execute, we have some of the greatest dollar growth prospects of any company in the world. Full stop. It’s there,” he said.

Ballmer said the company is confident in its long-term ability to grow revenue, profits and shareholder value through innovation and execution.

“We have been successful in addressing a significant portion of our ongoing legal exposure, and all seven of our businesses are growing,” he said.

Bill Gates, Microsoft’s chairman and chief software architect (who holds 1.1 billion shares of Microsoft), pointed to a coming era of new products that would continue to help shape profits.

They include database products such as SQL Server, as well as Microsoft’s search properties, which “would be improving in a dramatic way.” Gates also cited search functionality that would be built into the next version of Windows, called Longhorn, as well as coming speech recognition tools, as some of the products that would create lots of opportunity.

Beyond boosting the value of current shares with the buyback plan, the
company noted that settling some of its legal cases was also behind the
decision for the major buyback.

Although Microsoft officials said a number of legal issues remain, it
also has a much clearer understanding of the potential risks involved in the
cases that remain, such as the ongoing European Commission case.

The company said the payout would not impact its spending on research and
development or other growth initiatives. Gates said in this fiscal year
alone, the company would file for more than 3,000 patents.

Microsoft is slated to release its fourth quarter and full fiscal year earnings on Thursday.