[Am-info] Dividends

[John J. Urbaniak]

It seems that a significant component of the Bush economic stimulus plan
will involve the removal of taxation from corporate dividends.

I watch the financial and political programs on CNBC, CNN, Fox and
others.

Talking heads on these problems are *expecting* Microsoft to declare and
pay a significant stockholder dividend - they mention the enormous hoard
of cash (~$40 billion) which Microsoft is now sitting on.

Now I think the following numbers are accurate - if not, you can make
appropriate corrections.

There are about 7 billion shares of MSFT outstanding.

MSFT currently sells for about $54 per share.

A $1.00 per share dividend would yield slightly less than 2% of the $54
share price.  But such a dividend would cost Microsoft about 7 billion
dollars.  If they do this for a few years, their $40 billion begins to
dwindle.  Remember, dividends do nothing for the paying company - they
only generate goodwill for the investors.

The higher MSFT stock price rises, the higher dividend would be
*expected* by investors and pundits, because dividends are evaluated in
terms of the price of the stock.

What will Gates & company do?

Will they declare a reasonable 2 - 4 % dividend to reward their
investors?  7 billion lost to Microsoft treasury for every $1.00 of
dividend paid per year?

Will they forego a dividend and risk the wrath of the analysts,
investors, pundits and politicians who are expecting it?

Will they declare a pitifully small dividend and again risk the wrath of
those who keep looking at that $40 billion?

This is a no-win situation for MS, I think.

But I think it makes for an interesting discussion.

John