Posted on: Tuesday, November 16, 2004

Payout a short-term lift for Microsoft

By Michael J. Martinez
Associated Press

NEW YORK — With Microsoft Corp. shareholders on the verge of collectively receiving $32 billion in cash from the software maker's special $3 dividend, investors are wondering what's ahead for one of Wall Street's most popular stocks.

The July 20 announcement of the dividend ended years of speculation about Microsoft and its huge pile of cash. It also attracted new investors to the company's stock.

But with the approach of the payout, there are already changes in the marketplace. Wall Street adjusted Microsoft's price by $3 yesterday to reflect the dividend that will be paid Dec. 3 to shareholders of record as of tomorrow. The stock, a Dow Jones industrial, closed up 42 cents at $27.39 on the Nasdaq Stock Market after the "ex-dividend" adjustment.

"Once the stock goes ex-dividend ... we will likely see a corresponding drop in share price," said Jason Maynard, a research analyst with Merrill Lynch, who added that those investors who bought Microsoft specifically for the gain would drive the price lower.

By approving the special dividend, the company was trying not only to stir short-term interest in its stock after three years of flat share prices, but also to try to improve its long-term performance as an investment. The stock has declined steadily since Jan. 17, 2002, when it closed at $34.93. Since then, it has vacillated between $24 and $29 per share.

"Historically, stocks have paid their dividends and then they tend to move higher, especially if the trend of the market is somewhat perky," said Jeffrey Saut, chief investment strategist at Raymond James Financial Services.

Interest in Microsoft shares has been undeniable since the dividend was announced. The stock climbed 54 cents the day after the announcement, on volume of 201.6 million shares. The stock has climbed 5.8 percent from its July 20 closing price of $28.32 to Friday's close of $29.97.

However, the dividend raises questions about the company's business strategy going forward, as most companies with massive cash reserves are actively looking for acquisitions or major product launches.

The fact that Microsoft has chosen to issue this dividend could mean that it simply didn't know how best to invest the $60.6 billion in cash and short-term assets it had on hand before the dividend was announced.

While Microsoft's short-term prospects look good — and shareholders will certainly be happy — the company's longer-term outlook remains cloudy.

The company has not had a major release of Windows since 2002, and the next version is not due out until 2006. The 2003 version of its Office productivity suite has yet to make a major dent in a market dominated by older and less expensive versions of the exact same product.