Microsoft announces quarterly dividend increase and share repurchase program
microsoft.com
microsoft.com
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?
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.
Sure, if revenue hypothetically vanished, cash could cover it, but a lot of revenue is tied to expenses ("cost of goods sold" in the retail world), so if revenue dropped, expenses would as well.
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.
There's no reason why this has to be market changing, etc. Building a new factory that produces the same goods with more capital and less labour could be a use that would generate greater returns.
There are many reasons to hold capital and many reasons to dividend it.
So they're just renewing the buybacks with another $40 billion. It would actually have been a bigger deal if Microsoft had allowed the program to expire without a replacement.
From Microsoft's annual report for fiscal year 2013:
> "On September 22, 2008, we announced that our Board of Directors approved a new share repurchase program authorizing up to $40.0 billion in share repurchases with an expiration date of September 30, 2013. As of June 30, 2013, approximately $3.6 billion remained of the $40.0 billion approved repurchase amount."
And the 2008 buyback program was, in turn, a continuation of the 2004 buyback program.
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.
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.
And the entity that's buying the company does so with the intention of distributing the profits (to themselves).
A Ponzi scheme never generates more cash than it gets -- it only simulates profits.
This means that even if your stock of choice never distributes dividends, it is essentially a non-expiring call option on participation in an eventual sale.
Microsoft is struggling to figure out their future direction in the new mobile-centric world. They've now released multiple products that are (IMO) flops. Throwing cash back to investors might be good for the short term, but its all for naught if the company is irrelevant in 10 years.
Corporations rarely either start with a stock price of $0/share, and only end at $0/share when they end insolvent, which, while many end that, isn't the way all end.
Sure there would. The main theoretical support of the value of stock as a marketable asset is the claim on the corporations assets at dissolution and the hope that when the corporation is dissolved, your share will be worth more than when you bought it; dividends are just a means of effecting a partial dissolution.
If corporations never paid dividends, were never acquired for cash, and never otherwise dissolved except through insolvency which returned nothing to shareholders, then your argument with regard to the stock market might hold some weight (there'd still be a potential for a stock market if stock existed, but without an effective claim on assets, its hard to see how it would never suffice for raising capital in the first place.)
But there'd still be investing, even in businesses; it'd just all take the form of bonds.
How does that benefit anyone?
For example, say you and I both owned a company together, each of us with one share. If the company had 100 bucks in the bank and an app that earned 1 dollar a month, the company could offer 60 dollars for a share. This gives us a point of discrimination where I might take the deal since I feel like I could put it to better use elsewhere.
Furthermore in some places capital gains are more attractive than dividends (I know, it is stupid. It has to do with the original purchase price and changing tax rates over the years). So what some companies do is both a dividend and a share buy back for different classes of shares both of which are convertible to a "true" share. That way you can determine which method you want to get you money out of the stock.
Still, it's a noteworthy change that might mark the beginning of a change towards the post-Ballmer era.
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.