Microsoft May Raise Dividend by 15 Percent This Month

Microsoft Corp. (MSFT) may announce a 15 percent increase to its quarterly dividend later this month, according to data compiled by Bloomberg, as the world’s largest software maker faces a growing cash position.

The company’s board typically holds its annual meeting to set the dividend in September and has boosted the payout in each of the previous two years, including a 25 percent increase last year. Analysts estimate the software maker will raise the dividend by three cents to 23 cents a share.

Microsoft’s cash and short-term investments as of June 30 surged to more than $63 billion, from $52.8 billion a year earlier, just before the last dividend increase. While another boost would benefit investors, the company’s ability to increase the payout is constrained because most of its cash is held overseas and would be taxed if it were brought back.

“The board is likely to consider factors such as available onshore cash” in making its decision, Heather Bellini, an analyst at Goldman Sachs Group Inc., said in a research note.

“One benchmark the company and the board look to when determining the dividend increase is the growth in the prior year’s operating income,” wrote Bellini, who is expecting a 2 cent, or 10 percent, higher dividend. “As such, given that operating income only grew 3 percent in fiscal 2012 versus 12 percent in fiscal 2011, we also would expect the dividend increase to moderate from the 25 percent increase.”

Smaller Boost

Peter Wootton, a spokesman for Redmond, Washington-based Microsoft, declined to comment. The company has increased the dividend regularly since it began payouts in 2003

About $54 billion of Microsoft’s cash and equivalents was held overseas and “would be subject to material repatriation tax effects” if the company were to shift it back to the U.S. for uses such as the dividend, the software maker said in a July filing with the U.S. Securities and Exchange Commission.

A smaller increase could disappoint some investors since Microsoft options have a 3-cent dividend priced in to them, Bellini said, citing calculations by Goldman’s options strategists. Currently Microsoft has a dividend yield of 2.6 percent, less than more than half of the companies in the Dow Jones Industrial Average. Still its yield is larger than many of its technology rivals such as Oracle Corp. (ORCL) and International Business Machines Corp. (IBM)

Bellini also said she doesn’t expect a significant number of shares to be repurchased in the current fiscal year. Microsoft has about $8.2 billion remaining in the last share buyback program approved by the board, she said.

Bloomberg dividend forecasts look at seven criteria, including dividend history and public estimates.

Microsoft’s shares have increased 18 percent this year. The shares fell less than one percent to $30.74 at the close in New York.

-- Editors: Reed Stevenson, Lisa Rapaport

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

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