Microsoft is trying to lift its stock price by boosting its dividend by 25%, the largest increase since the world’s largest software maker started the quarterly payments seven years ago.
The change announced on Tuesday will boost Microsoft’s dividend to 20c per share from 16c per share. That topped a 23%, or 3c per share, increase made on the dividend a year ago.
It’s the sixth time Microsoft has raised its dividend since it introduced an 8c payment per share to shareholders in 2004.
The decision to start paying a regular quarterly dividend signalled that Microsoft’s board of directors realised the company’s growth rate by itself would no longer be enough to attract investors. That wasn’t the case during Microsoft’s first 14 years as public company as its Windows operating system and other products became personal computer staples. From Microsoft’s stock market debut in 1986 to the peak of the dot-com boom in early 2000, the company’s shares rose by about 500-fold.
That allowed Microsoft to hold on to its cash instead of using it to entice investors to its stock.
But things have changed. The rise of the internet and the advent of cellphones and computer tablets have made Microsoft’s products look less essential, and given rise to concerns that the company might be heading toward technological obsolescence.
Microsoft has been trying to change that perception by pouring billions into its Bing search engine in an effort to counter Google’s dominance. More recently, it has been focusing on a sweeping overhaul of its Windows operating system so it can run on touch-screen tablets as well as traditional PCs. The redesigned system, Windows 8, is expected to go on sale next year.
In the meantime, Microsoft has been escalating the size of its dividend increases. Despite those actions, Microsoft’s stock performance has been lagging two other technology bellwethers that rank among its biggest rivals.
Microsoft’s stock is stuck at roughly the same level it was five years ago while Google shares have risen 27% and Apple shares have surged to a more than five-fold increase.
Microsoft’s past dividend increases haven’t done much for the company’s stock, according to FBR Capital Markets analyst David Hilal. He found the stock’s gains on the day following the five previous announced dividend increases have never exceeded 2%. In 2005 and 2010, the stock dipped in the first of day of trading after Microsoft announced a dividend increase.
The shares gained 17c — or less than 1% — to $27.15 after Tuesday’s announcement. At that price, Microsoft’s dividend would translate into an annual yield of about 3%.
The new dividend is payable on December 8 to shareholders of record on November 17. — Sapa-AP