Microsoft Raises Its Dividend 25%, Reaching Upper End of Predicted Range

Microsoft Corp. (MSFT), the world’s biggest software maker, raised its quarterly dividend 25 percent to 20 cents, providing investors with a payout at the upper end of forecasts.

The new dividend is a penny more the 19 cents a share projected by Bloomberg data and compares with the 18 cents to 20 cents estimated by Heather Bellini, an analyst at Goldman Sachs Group Inc. in New York. The change, announced in a statement today, boosts the yield to 2.97 percent from 2.37 percent.

Microsoft generally has a policy of boosting the dividend in line with operating income. While the increase exceeded the 13 percent growth in operating income in the past fiscal year, investors were seeking more, Bellini said. The company’s cash and short-term investments surged 43 percent last year, and shareholders wanted a bigger piece of that hoard.

Microsoft’s ability to return cash to shareholders is hampered by the fact that much of that money is held internationally and would require the company to pay taxes to bring it back into the country for the purpose of paying a larger dividend.

About $45 billion, or 85 percent of the company’s cash and short-term investments, is held outside the U.S., the company said in a July 28 regulatory filing. Around half of annual cash flow from operations is generated abroad, Bellini estimated, which gives the company about $15 billion to $17 billion to spend on dividends and share repurchases this year.

Double It

Even so, Neil Herman, an analyst at Ticonderoga Securities LLC, suggested in an August report that the company should double its dividend in order to boost its share price. The shares, which have declined 3.3 percent this year, might surge past $35 with an increase of that magnitude, he wrote.

Shares of Microsoft, based in Redmond, Washington, fell 23 cents to $26.98 today on the Nasdaq Stock Market. They rose to $27.10 in late trading after the increase was announced.

Before today, Microsoft has paid out about 25 percent of earnings as dividends since starting the payments in 2003, according to Bloomberg data. Dividend-paying companies with similar market valuations to Microsoft are paying closer to 40 percent to 50 percent, the data show.

The company also said today it will continue its $40 billion stock buyback plan begun in 2008. The program, which expires in 2013, had about $12.2 billion remaining as of June 30, Microsoft said.

To contact the reporter on this story: Dina Bass in Seattle at dbass2@bloomberg.net

To contact the editors responsible for this story: Tom Giles at tgiles5@bloomberg.net