A $32bn Dividend (Cont)
Mark Cuban has a nice post on Microsoft's dividend and stock buyback.
He loves the dividend and hates the stock buyback.
I don't totally agree with Mark. I agree that the dividend is preferable, but if you are a shareholder and want to continue to own the stock long term, then the buyback is going to result in more ownership over time.
If Microsoft stock doesn't go up over the four years of the buyback (as a shareholder I'd like it to), then they'll buy back a bit more than 1bn shares over the next four years. Since Microsoft has a bit more than 10bn shares outstanding, that means they could buy back 10% of their stock.
That means every shareholder who holds on through the buyback could end up owning 10% more of the Company. I think that is a good reward for the long term shareholders.
We did this at TheStreet.com when I was Chairman of the Board. The stock was at $1/share and headed lower. I don't recall the exact specifics, but I think we did a $10mm stock buyback and repurchased almost 1/3 of the company. The stock went to $5/share and has settled in between $3 and $4/share. That was a good move for the Company and the shareholders.
Jeff Jarvis also posted on this subject. In addition to linking to me and Mark (thanks Jeff), he says "I actually find it depressing that Microsoft could not find aggressive ways to invest and grow that money. It says to me that the era of tech hypergrowth is over. Microsoft is now officially the next IBM. And Google is no Microsoft."
Wrong Jeff. The era of hypergrowth in core tech is over. Operating systems, databases, applications are a slow growth business. Applied tech like Google and Microsoft's own MSN business remain very exciting areas of investment. As I said in my first post on this subject, Microsoft has places that they want to invest, but they couldn't find $60bn of places. Who can? There isn't enough growth opportunity inside any major corporation to satisfy that kind of demand these days. So they did the right thing. They gave it back.
And I like the way they did it.