Microsoft Dividend Policy

Dividend is the share of the PROFIT that a company decides to distribute to its shareholders.

While the company pays tax on the distributed dividends, the shareholders can enjoy their dividends TAX-FREE.

Retained earnings ∝

Retention Dividends

cash dividends1__________

Retention Dividends

Cash retained for expansion

Paid in Cash Scrip Dividend (in%), but different from STOCK SPLIT(in fraction)

$3 in 2004

• Bonus/Extra Dividend

• One-off(non recurring distribution)

• To relieve its B/S of HUGE cash balance

Dividend Policy

Traditional Relevance IrRelevance

DIVIDEND YIELD

Dividend Yield= Annual Dividend Per Share/Price Per Share

YIELD CURVETypes Of Yield Curve

Normal Inverted Flat (humped)

Normal

Inverted

Flat

CASE

• Profits are HELD with MSFT

• 1st company in DOW 30

• In 2003 the company declared its FIRST ever dividend for common stock.

• Returns to the shareholders in the form of CASH DIVIDENDS and SHARE REPURCHASES

• In 2010, the company decided to raise a debt of $6bn in order to pay for the dividends and to repurchase shares.

• The financial debt could be raised from 30bp to 87.5 bp(base point) over the treasury bill for 3 to 30 years.

• The company raised the debt despite of cash surplus as it did not want to repatriate the cash which had been invested outside the US as it would have to pay taxes.

• MSFT showed it love for debt and for the share holder it meant a higher dividend rate and for bond holder it meant a safe option to invest.

• MSFT faced the biggest challenge from the software market where they faced the duplicity and piracy of its software.

Current Statistics

Market Price= $36.17

Dividend yield = 3.10%

P/E ratio= 13.40

C:\Users\Sivaditya\Desktop\microsoft\MSFT.htm

EPS $ 0.53 @ 2012

$ 0.63 @ 2013

Recent Dividends

2012 $4466m

2013 $5244m

NET INCOME

REASON OUT

Bird in hand is worth two in the bush

is the company buying back shares ?

Price/Earnings Ratio (P/E)