Why MICROSOFT decided to pay dividends in 2003?
1.1 The company might see itself stepping in ¡§Maturity Stage¡¨
- Harder to grow, revenue growth slide down
Investors buy stock for one of two reasons; either it will grow in value or pay a dividend. If a company stops growing, stockholders will demand a dividend. If they don't get it, they will sell their stock. In the history, Microsoft enjoyed incredible growth, so dividend was unnecessary. Recent Microsoft dividends may tell us that the company has ended its growth phase and is now a 'mature' company.
- More competitions from Open source like Linux and open office
Windows and Office continue to supply most of Microsoft¡¦s profit. But that profit is being squeezed as more and more companies are using Linux servers and even Linux desktops. For example, China is developing its own OS (Operating System) and planning to use for the whole country (their intention is to keep Microsoft away from the country). The company has been forced to slash prices for some key customers to avoid large scale defections, which leads to difficulties to locate the right price because high price may reduce the market share, but low price to compete against open source may reduce its core revenue.
1.2 Expecting the stock price will increase after dividends paid
- Investors can buy more shares
Experts say most investors will also likely use the extra cash to buy more shares. And there¡¦s no guarantee the investors will spend money in the economy. Indeed, most investors will probably reinvest it or keep it in a cash account at their brokerage.
- Stocks buyback policy from Microsoft itself
Even if Microsoft use ¡§Optimal Distribution Policy¡¨ in which there is a balance between cash dividends (around 32 billions USD) and stock repurchase (around 30 billions USD). This may affect the decrease in stock price a little while after the announcement of dividend payout, however investors still hope for the rising price in the future.
1.3 The company reserves the great amount of cash liquidity
As we can see from the article that Microsoft can pay around 32 billions USD for cash dividend, 30 billions USD for stocks repurchase and another 3 billions USD, for the goodness, to Bill & Melinda Gates foundation.
Agree / Disagree with the decision, explain why?
AGREE because:
„I As the company is reaching the maturity stage, dividend payout is another option instead of company growth only
„I 30 billion USD buy back will contribute to keep the stock value up and make investors happy
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It has boosted EPS for the company and at the same time given investors a reason to rejoice by giving them dividends.
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