After Microsoft splits its stock 2-1, the Redmond-based company will pay its first dividend — 8 cents per share. The split takes effect Jan. 27, the company said Thursday.
Microsoft long had opposed calls from some shareholders to use some of its cash reserves to pay a dividend, arguing its vast prosperity was better spent on research and product development.
But Microsoft's board voted unanimously Wednesday to issue a dividend since many of the company's antitrust and other legal issues have been largely resolved, chief financial officer John Connors said. They included a $1.1 billion settlement of a class-action lawsuit filed by California consumers.
"We were the only Dow 30 company that has not declared and paid a dividend," Connors noted, calling the small payment "a starter dividend. If you stack us up against other big tech companies, we're right in the ballpark and it's a good place to start," he said.
Microsoft chairman Bill Gates would own about 1.2 billion shares after the stock split — giving him a $99.5 million dividend payment.
Connors said the Bush administration's proposal last week to eliminate the federal dividend tax was "just coincidental in timing." But that proposal was certain to increase shareholder pressure.
The dividend is payable March 7 to shareholders of record Feb. 21. Microsoft will review the dividend program regularly, but hopes to make it an annual payout, Connors said.
After the stock split, Microsoft will have 10.8 billion shares outstanding, for a total dividend payout of about $864 million.
"This is the news that Microsoft investors have been waiting for," said Michael Gartenberg, research director for Jupiter Research. "With $40 billion in cash, it was hard for Microsoft to justify keeping that all set aside for research and development and legal fees."
The dividend itself "is a step in the right direction," said Marty Shagrin, a research analyst with Victory Capital Management. Still, he called it "pretty small."
Also Thursday, the company also announced an earnings boost for its quarter ended Dec. 31, although investors seemed unimpressed as they drove the stock price down nearly 5 percent.
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 year-ago period, slightly beating analysts' expectations.
The company reported record revenue of $8.54 billion for the quarter, a 10 percent increase over the $7.74 billion last year.
The company said its quarterly performance was due to strong sales of computer server software, which increased 12 percent to $1.7 billion.
Sales of Xbox game consoles were on the lower end of the company range, comptroller Scott Boggs said, declining to disclose how many units Microsoft sold in the quarter. Since June 30, the company has sold about 4 million consoles. The company also said more than 250,000 people have signed up for its new Xbox Live online video-game service.