Microsoft to offer its first dividend

Bill Gates, as owner of 1.2-billion shares after a stock split, will receive $99.5-million from his holdings.

©Associated Press
January 17, 2003

SEATTLE -- Microsoft Corp. offered its first dividend to shareholders Thursday and reported an increase in quarterly earnings, but its stock slumped anyway on lower revenue estimates for 2003.

Microsoft, based in Redmond, Wash., also announced plans for a two-for-one stock split.

The company had long opposed calls from some shareholders to take some of its cash hoard -- now $43.4-billion -- and start issuing dividends, but recently said it would reconsider. Microsoft's board unanimously decided Thursday to pay a dividend of 8 cents a share after the stock split, according to chief financial officer John Connors.

"We were the only Dow 30 company that has not declared and paid a dividend," Connors said.

Microsoft chairman Bill Gates, as the owner of about 1.2-billion shares after the stock split, would receive a dividend of $99.5-million.

Connors said the Bush administration's proposal last week to repeal the federal dividend tax was "just coincidental in timing." The proposal was certain to increase shareholder pressure.

Connors indicated the company felt more comfortable promising a dividend now that "we have resolved several of our outstanding legal issues," he said. They included a $1.1-billion settlement of a class-action lawsuit filed by California consumers.

The dividend is payable March 7 to shareholders of record Feb. 21. Microsoft will regularly review the dividend program, but hopes to make it an annual payout, Connors said.

After the stock split, Microsoft will have 10.8-billion shares outstanding, which works out to a total dividend payout of about $864-million.

For the quarter ended Dec. 31, Microsoft reported a profit of $2.55-billion, or 47 cents a share, up 12 percent from $2.28-billion or 41 cents a share in the same period a year earlier.

The company reported revenue of $8.54-billion for the quarter, a 10 percent increase over the $7.74-billion the previous year.

Analysts surveyed by Thomson First Call had a consensus estimate of 46 cents a share on revenue of $8.6-billion.

Microsoft shares closed down 92 cents a share, or 1.6 percent, Thursday at $55.35 on the Nasdaq Stock Market. Shares fell another $1.72 a share, or 3 percent, in extended trading after Microsoft released its first-quarter results.

The company said its quarterly performance was due to strong sales of computer server software, which increased 12 percent to $1.7-billion, and healthy sales of its Xbox game consoles and the launch of its new online video-game service. Microsoft's home and entertainment sector, which includes Xbox, had revenues of $1.3-billion, a 38 percent increase over the previous year.

Although Microsoft performed well in the quarter, its outlook for the remainder of the year was less than analysts hoped and may be the reason the stock was falling in after-hours trading, said Marty Shagrin, a research analyst with Victory Capital Management.

The dividend itself "is a step in the right direction," he said, but still rates "pretty small."

Microsoft said it expects profits to be 47 cents to 48 cents a share on revenue of $7.7-billion to $7.8-billion for the third quarter that ends March 31. For the full year, the company downgraded its revenue estimates to an estimated $31.9-billion to $32.1-billion with profits between $1.90 a share and $1.93 a share.

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