

Microsoft announces quarterly dividend increase and share repurchase program - vukmir
http://www.microsoft.com/en-us/news/press/2013/sep13/09-17dividendpr.aspx

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casca
It's very interesting that Microsoft is the first large tech company to do
this in the current cycle. So many of their peers are also wallowing in cash
and seemingly unwilling to make large investments so the pile keeps growing.

Companies are supposed to use their capital to innovate and create new,
market-changing products and services. Perhaps it's because interest rates are
so low and therefore capital is so cheap? Is the hording related to an
expectation of another round of the regular tax amnesty for them to repatriate
the funds to the US?

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a-priori
I don't buy the "wallowing in cash" argument.

In the last quarter, Google reported $54.4B in cash and short term investments
and $14.1B in revenue, Apple reported $42.6B in cash and equivalents and
$35.3B in revenue and Microsoft reported $76.7B in cash & equivalents and
$19.8B in revenue.

Measured in terms of quarters of revenue held in cash & equivalents, Google
and Microsoft are more or less tied at 3.8 quarters, and Apple is running
relatively lean at 1.2 quarters.

Despite not paying dividends Google is, proportionate to revenue, not holding
any more cash than Microsoft, and Apple is holding far less.

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jcampbell1
Apple has $140B of cash/near-cash. It just get's bucketed as long term
investments because of GAAP rules.

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preempalver
Apple also has $15B of MBS (mortgage backed securities) on its books. Near
cash it is not. GAAP is correct.

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jcampbell1
I agree with the GAAP rules, but the GAAP rules require < 90 day instruments.
The complexity of rolling $140B every 90 days is insane. You are going to have
days where there just isn't enough liquidity.

They are basically managing $100B in house rather than getting screwed by
banks every 90 days. GAAP is right, Apple is also right, but saying they only
have $40B in cash, is very misleading. They could return $100B to shareholders
in 6 months with ease.

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jacquesm
Both are ways to return money to the shareholders with the balance shifting
from giving more flexibility to the shareholders vs more flexibility to the
company. Of course the chunks are substantially larger when it comes to buying
back individual shares vs paying out a (still relatively small) dividend so
there will likely be a balance struck between the two.

By announcing a share repurchase they are also signalling they believe that
the shares are undervalued but the strength of that signal is strongly
dependent on the amount of money they commit to buying back stock, in this
case about 1/7th of their total cap.

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beambot
Subtext: We don't know where to put the $$ at this critical transition point
(Ballmer leaving). Rather than figuring it out, we're just going to give the
money to shareholders -- that's the safe way so that they can't question our
fiduciary responsibility.

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Mikeb85
All tech companies should do this once they reach a certain maturity.
Eventually every company should return capital to the markets, otherwise the
markets would just be one big ponzi scheme...

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stingraycharles
Not necessarily a good comparison, since the shares can be traded. You can
step in very late and still have all the chances to get very rich, which is
hardly possible with a Ponzi scheme.

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Mikeb85
A ponzi scheme is defined by the fact that the only profit to be made comes
from people who buy in after you. If companies don't return capital to the
markets (through dividends or buybacks), then it absolutely fits the
definition of ponzi scheme.

The proper cycle of a publicly traded company is that it trades equity for
capital, uses said capital to invest in itself, then returns capital when it
reaches a certain maturity. Anything else is a scam.

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chris_mahan
Or the company is bought out for cash, as in the case of Dell, or bought by
another company for cash and/or shares.

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Mikeb85
No company goes public with the intention of being bought out.

And the entity that's buying the company does so with the intention of
distributing the profits (to themselves).

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loumf
The difference between a company and a Ponzi scheme is that the company is
actually creating some value. It is converting capital into resources,
priorities and processes that generate more capital than it gets. At some
point it can't convert capital into more capital, so it's better to pay a
dividend -- but even if it never does this, it's not a Ponzi scheme if value
is being created.

A Ponzi scheme never generates more cash than it gets -- it only simulates
profits.

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tocomment
I never understood the purpose of share buybacks. Sure there will be less
shares outstanding but the company will be worth that much less from having
spent the cash to buy the shares.

How does that benefit anyone?

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Tuna-Fish
It transfers money from the company to the owners, just like dividends do.
Other than possibly providing different tax outcomes, share buybacks and
dividend payments are _completely equivalent_. Any shareholder can take their
portion of the dividend/buyback as either as ownership of the company, or as
cash, by trading the relevant amount on the market.

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eigenvalue
This is actually not true because it ignores the fact that a company's shares
could be trading cheap or dear. One dollar in the form of a dividend payment
is always worth one dollar (ignoring taxes), whereas if the company can buy in
a share with intrinsic value of X for the cost of 0.8*X, then it is "creating
value" for the remaining shares. Conversely, if the shares are expensive
relative to intrinsic value, then a buyback destroys value for the remaining
shares.

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JimboOmega
I wonder what this means in terms of Microsoft's overall corporate
direction... however, the scale isn't large enough to indicate that they
intend to stop deploying cash to expand into new markets. (e.g., instead of
throwing billions to promote bing, they just return the money to
shareholders).

Still, it's a noteworthy change that might mark the beginning of a change
towards the post-Ballmer era.

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tanzam75
Microsoft has been buying back shares and increasing its dividend since 2004.
This is just a continuation of the existing program.

It would have been more noteworthy if Microsoft had _stopped_ buying back
shares, or _stopped_ paying the dividend, or even just allowed the dividend to
remain unchanged.

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marssaxman
They've been a revenue producer and not a growth producer for a long time now,
so it's good that they're finally paying out some dividends.

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InclinedPlane
They've been paying out an ok dividend for a while but not really enough to
make up for the flat stock price.

