Microsoft's dividend should be emulated

IF YOU'RE a shareholder of Microsoft, you must feel a bit like actress Sally Field.

Talking to a Charles Schwab broker for a TV commercial a few years ago, Field reprised her unforgettable Oscar awards outburst: "You like me, you really like me, you really, really like me!"


Unfortunately, the inmates haven't taken over the asylum. But Microsoft's decision to return a staggering $75 billion to its shareholders could mark a turning point in the way corporate insiders relate to ordinary shareholders in the post-Enron world.

It was no secret that Microsoft was sitting on a cash hoard of $60 billion and churning out $1 billion in free cash - after investments and expenses - every month.


That's an amount even the most inventive software company could not profitably deploy inside the business without sparking antitrust allegations.

Wall Street has little interest in dividends, despite the new tax law that trims rates on dividend income to the same level as capital gains.

Analysts had hoped the company would stage a major share buyback, which normally is a device for facilitating employee stock option awards.

But for once, ordinary shareholders will get a substantial payoff, including a one-time cash dividend of $3 a share, worth $32 billion.

"You usually have to be a Senate committee to move $30 billion," said Howard Silverblatt, an analyst at Standard & Poor's.

The company also doubled its regular dividend, to an annual rate of 32 cents a share, and pledged to repurchase up to $30 billion in stock.

"The magnitude was about two times the size we were looking for," said analyst C. Eugene Munster at Piper Jaffray.

Microsoft is unique among firms in its ability to transfer billions of dollars in cash to investors without impairing its balance sheet or growth prospects.


But its decision should resonate throughout boardrooms.

Corporate profits are running at record high levels, even as workers' inflation-adjusted take-home pay stagnates.

The percentage of S&P; 500 profits being paid out as dividends stands at about 30 percent, well below the historical average of 54 percent.

Regular dividends serve several purposes for companies and shareholders:

The obligation to write dividend checks every quarter disciplines corporate behavior.

Paying regular dividends increases the market for shares and stabilizes the volatility of share prices.


Dividends provide income for investors and an affinity for companies beyond the casino delights of trading stocks.

Equity strategist Tobias M. Levkovich at Smith Barney said: "We might be in a period of low-return environments, which is not something that investors are excited about. If that is the case, dividends become even more important to return money to shareholders."

S&P; 500 stocks that pay dividends returned 4.8 percent in the first half of the year, while nonpayers lost 3.5 percent.

In short, boosting dividends is a win-win opportunity for companies, investors and, not a moment too soon, Wall Street.

Last week, the Schwab Corp. board of directors fired chief executive David S. Pottruck for failing to live up to Sally Field's exclamation.

Bill Barnhart is a columnist for the Chicago Tribune, a Tribune Publishing newspaper. E-mail him at