Microsoft : Dividend Policy

Present By:
Presented to : Anant Nanda 17BSP0326
Prof. Ranjani Matta Akshay Bhalla 17BSP248
Akshita Garg17BSP0269
Anshul Mishra 17BSP0411
Ankit Sansanwal 17BSP375
Ashish Yadav 17BSP528
Case Introduction
 This case is all about Dividend Policy used by Microsoft
corporation.
 Microsoft has not paid divined for 28 years. It believes in ploughing
back money into its research and development.
 In year 2003 the company declared its first ever dividend for
common stock.
 Microsoft continued its return to the shareholders both
in the form of cash dividends and share repurchases.
 The management of the company decided to raise a debt of $6
billion in order to pay for the dividend and the share buyback.
 Dividend Policy
There are four different ways to give dividend to its shareholders….
a) Cash dividend
b) Bonus share
c) Share split
d) Shares buyback
Between year 2003 to 2010 the company paid dividends to its shareholders in the form of
cash dividend and buyback of shares.
Special Dividend : This dividend is Non recurring in Nature & in December 2004 MSFT distributed
huge cash dividend i.e. $ 3.40 per equity share to its shareholders as special dividend…

No Dividend : After 28 years of operations first time in 2003 MSFT paid dividend , before this MSFT
used is PAT only in new investment & project developments.
 Cash dividend
They provide the cash to their shareholders from
their…..
a) Reserve and surplus
b) Other accounting sources(debt).
Here is some detail about cash dividend of
Microsoft……
 Types of repurchases
1) Open market operation: Company can buyback its share
through authorised broker in open market.
2) Tender offer: In this company will specify the purchase price,
total amount and period within which shares will be bought
back.
3) Dutch auction: In this Auctioneer begins with a high asking
price which is lowered until some participant is willing the
auctioneers price is reached. The winning participant pays the
last announce price.
4) Targeted price: A target company attempts to stop a
hostile takeover by buying back its own stock and
shares, often pays a premium above the market price.
5) Greenmail: A premium paid to a rider to get him/her to
terminate a takeover attempt.
 Advantages of Dividends
1) Return to surplus cash to shareholders.
2) Tax savings by companies.
3) Enhancing shareholders value.
 Reason for taking debt in spite of having surplus cash

1) To provide dividend to its shareholders Microsoft went for debt

because they did not want to return the cash which has been
invested outside the US as it would have to pay the tax.
2) The Federal Reserve move to soften the interest rate made
it attractive for the companies with highest rating to raise
the debt at cheapest rate.
CONCLUSION…..
Conclusion 01 : Share repurchases have Positive effect on share prices;

The company announced major share buybacks as a part of its overall finance strategy
of increasing shareholder value. On September 22, 2008, it announced $40 billion worth of
stock repurchases. The market took the buyback positively and the MSFT share price pushed to
$26.50 per share in premarket trading, up 5.33%

Conclusion 02: Cash Dividend Positive effect on share prices;

A major advantage of paying dividends is that they can help provide shareholder
loyalty. When companies display consistent dividend histories, they become more attractive
to investors. As more investors buy in to take advantage of this benefit of stock ownership, the
stock price naturally increases, thereby reinforcing the belief that the stock is strong.

‘In each method of (share repurchase & cash dividend) of dividend

distribution share price will increase’ .