Dude, where's my cash?" That's the question investors have been asking Microsoft Corp. (MSFT) for months as the company's green stuff piled up to some $60 billion. On July 21 they got their answer. Microsoft announced the largest one-time corporate dividend in history. On Dec. 2, it will pay out an eye-popping $32 billion to shareholders. It will also double its annual dividend to 32 cents a share, or $3.5 billion, and buy back $30 billion worth of its own stock over the next four years.
Will the payout have any impact on the economy? After all, individuals own about 30% of Microsoft's stock, and they will get some $9 billion in the payout. That's almost in the same league as the $14 billion U.S. families received last year with the expanded child-credit tax cut. Folks are also wondering whether the cash will boost the stock market. Not a dumb question: Index funds, big holders of the stock, will have to reinvest the cash in short order.
Truth is, the big pay day won't affect the economy or overall market too much. That's because both institutional investors and individuals will likely deploy the windfall in different ways. Indexer Patrick O'Connor, senior portfolio manager at Barclays Global Investors, the second-largest institutional holder of Microsoft shares, says he'll swing into action after Nov. 17 -- the deadline for investors who want to buy the stock and reap the dividend. He'll be buying Standard & Poor's 500-stock index futures contracts in order to track the index as closely as possible as Microsoft likely swoons. After the Dec. 2 payout, he'll buy shares outright for the exchange-traded funds he manages. "I think indexing-buying could affect the performance of the smaller S&P 500 stocks. But it's not going to move General Electric (GE)," he says.
Steven Neimeth, senior portfolio manager at AIG SunAmerica Asset Management, who runs several actively managed funds, thinks Microsoft's actions may boost the stocks of cash-rich companies such as Limited Brands Inc. (LTD) and Hewlett-Packard Co. (HPQ) "I think we're going to see more dividend and buyback announcements from companies in the coming months," he says.
And when it comes to the overall economy, experts say that most investors will also likely use the extra cash to buy more shares. "It's unusual for people to ask for a cash check when they receive a dividend," says Barclay's O'Connor. And even if they do, there's no guarantee they'll spend the money on, say, an Armani suit. Indeed, most investors will probably reinvest it or keep it in a cash account at their brokerage. One thing for sure, Microsoft Chairman Bill Gates isn't going to be plowing his money directly into the economy: He has pledged his personal $3.4 billion windfall to his charitable foundation.
Longer run, the main gainer might be Microsoft stock. Says shareholder Richard Steinberg, the head of Steinberg Global Asset Management in Boca Raton, Fla.: "Microsoft could have used the money for some potentially disastrous deals. This eliminates the notion of them doing something stupid with that money."
By Marcia Vickers in New York