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The Honolulu Advertiser
Posted on: Thursday, July 22, 2004

Microsoft morphs into cash maker

By Michael J. Martinez
Associated Press

NEW YORK — Who is the average Microsoft Corp. investor? Is it one of the company's many millionaire employees? A caffeine-and-adrenaline riddled day-trader? A major institution like Morgan Stanley or Goldman Sachs?

Or Donna Jones, a retired school administrator in Brookville, Ohio?

"I didn't own Microsoft until, oh, I think it was this March," Jones said yesterday, a day after the software giant announced $75 billion worth of dividends and buybacks. "There was a big dip in the price and I thought, well, this is a good time to get it. Even then, the nice part of the stock for someone my age was the dividend."

Microsoft ... a dividend play? The software maker that not only redefined personal computing, but also helped incite the dot-com boom of the '90s, is now considered a safe bet for retirees?

"There's no doubt that Microsoft used to be a large-cap growth stock, and there was an element of risk to that," said Joe Keating, chief investment officer for AmSouth Bank. "But they've had to evolve, and they've done so. It's more of a cash generator than a growth company."

With Microsoft's announcement Tuesday of a $3 special dividend, a doubling of its annual dividend to 32 cents per share and a $30 billion stock buyback program, investors large and small are in agreement — Microsoft may not be the high-flying growth stock of the 1990s, but it is part of a select group of stocks that are among the most widely held in the United States.

"It's a major core holding, and it's a rare portfolio or fund that doesn't have a stake in it," said Lincoln Anderson, chief investment officer at LPL Financial Services in Boston.

That's a huge shift for a stock that has been publicly traded for just 18 years. An investor who bought $100 worth of Microsoft stock in 1986 would have more than $33,000 today, thanks to nine stock splits and a massive run-up in price in the late 1990s.

However, those who invested in Microsoft recently would be disappointed. The stock has hovered around the $25 mark, split-adjusted, for three years. While the company's earnings have been strong, the company hasn't outstripped the rest of the market. Performance like that led some investors to dump it.

"When I sold it around late 2000, it was clear to me that as a classic growth stock, it just wasn't performing like one," said Joe Craig, a physicist in Ellicott City, Md., who purchased Microsoft stock in the mid-1990s. "Now, every time I look at Microsoft, I think there are better growth stocks I could be buying."