Shares in the software giant rally Monday, fueled by speculation that Microsoft is mulling whether to share more of its cash hoard with investors.
According to reports in the Financial Times and its sister publication Les Echoes, Redmond, Wash.-based Microsoft is considering whether to pay a one-time, $10 billion dividend to shareholders, among other options. This would represent the largest single payout to investors ever made by a company.
On the other hand, Microsoft may decide to gradually increase its dividend, buy back its shares or acquire other companies in order to reduce its cash holdings of $46 billion, according to the reports. The company has come under pressure to share its cash hoard with investors as its growth has slowed. Microsoft is expected to settle on a plan by year's end.
A Microsoft spokesman declined to comment.
In January, Microsoft pleased investors by announcing a 2-for-1 stock split, the ninth such move since the company went public in 1986. It also announced its first dividend--a modest payment of 8 cents per share annually.
President Bush's proposed plan to lower taxes on corporate dividends has prompted many companies to review their dividend policies. Microsoft Chairman Bill Gates, who controls more than 11 percent of the company's shares, would benefit considerably from a dividend payment.
Wall Street analysts said Monday they would not be surprised if Microsoft increased its dividend, but they remained skeptical of a $10 billion "special" payout.
Competitors and customers find
cracks in the software empire.
"(Microsoft) has made it no secret that they would be willing to make this sort of move, but it's not likely to happen overnight," said Bob Austrian, software analyst at Banc of America Securities in Charlotte, N.C. "What this depends on right now is Microsoft improving its legal situation, and general tax law reform."
Another analyst speculated that Microsoft would elect to raise its dividend, compared with the other options. "Even before the Department of Justice suit, the big question has been what Microsoft is going to do with all the money," said Jason Kraft, analyst for A.G. Edwards & Sons in St. Louis. "An acquisition doesn't seem as likely, nor does an aggressive stock buyback."
Kraft said it should be easier to figure out which option Microsoft is considering most seriously after a scheduled call with industry analysts on July 24.
Microsoft closed Monday at $27.42, up 92 cents, in Nasdaq trading.