[Am-info] Dividends

[John J. Urbaniak]

Dave Solomon wrote:

> John J. Urbaniak wrote:
>
> >Dave Solomon wrote:
> >
>
> >John J. Urbaniak wrote:
> >Microsoft can't just "give" employees 100,000 shares of stock.  At the
> current price of about $55, that would be $5,500,000 - some "hiring bonus!"
>
> As you mention below, Micrsoft can give out shares of stock, if the
> stockholders approve.  What is the probability of the stockholders
> approving a proposal that company management recommends?  My guess
> is that it is better than 99.9 percent.

Not in this case.  Issuance of new stock *dilutes* the value of the stock they
currently hold.

This is not a "split," where the holder gets more shares at a reduced price.  This
would be simply issuance of new stock.  The current holder gets nothing.  Thus,
they would be very reluctant to approve such an issuance.

>
>
> >
> >At our hypothetical $1 dividend, an employee would have to hold 10 shares of
> >stock to receive the same amount of money for 1 year.  As I have stated
> >above, the 10 shares would be worth $550, which would have to be accounted
> >for.  MS can't just "give" employees shares of stock like they give options
> >now.
> >
> >John
>
> I don't see why not.  Where in the law, where in SEC regulations, where in
> the company charter does it say that they can't?

This is standard incorporation procedure.  When a company is founded, it creates a
fixed number of shares of its stock.  This number can be changed at times, but
*only* with the approval of the shareholders, who actually own the company.

> If they can't, how about
> giving options at a strike price of $1, rather than $45?

They could do that if, and only if, they have enough shares to cover those
options.  For example, if they give an option at a price of $1, the receiver can
immediately exercise the option and buy the stock.  Therefore, the stock must be
available for the option to be valid.

Surely, Microsoft has some number of shares available for potential option
exercises, but I am sure they don't have enough to cover all $1 options they would
have to give out.   When they give options, they assume that most people won't
exercise those options at once.

But if you were given a $1 MSFT option, wouldn't you be severely tempted to
exercise that option right away and see a $50 gain?  Why would you wait?

In any case, MS would have to have enough shares to cover the options.

>
>
> In any case, I see your point about dividends taking money out of the
> company's assets, and giving the company little in return.  I wouldn't
> say _nothing_ in return -- dividends would probably enhance demand for
> the stock and thus raise the stock price a little bit; but probably not
> enough to outweigh the cost of the dividends.
>
> Still, for Microsoft to pay dividends, the company management has to
> decide to do so; or they have to be forced to do so by the stockholders.
> Management won't do it voluntarily, if they think it's detrimental to
> the company.  That leaves the possibility of stockholders demanding
> the payout of dividends.
>
> Hmmm, imagine that ... stockholders looting the company, rather than
> management looting the company!  Wow, I might begin to like this idea.

Yes, that's the point.

And it was announced that Microsoft will NOT pay dividends.  After that
announcement, the stock dropped almost $2.00.

There is nothing in Microsoft's future which portends any kind of growth like they
saw in the 90's.  Thus there is no reason to expect significant growth in the
stock price.  People will look at Microsoft stock and ask "what has MSFT done for
me lately?"  The answer is nothing.  Nothing but stagnation.

This is a manifestation of Gates' overwhelming greed.  And large holders, such as
mutual funds, pension plans, etc., recognize it as such and will dump their MSFT
holdings and look at more solid, reliable companies who do consider paying
dividends.

While the Bush Justice(?) Dept. slapped MS on the wrist in the Antitrust case,
this policy about dividends will have a much more devastating effect on the
company, I am sure.

John