Wednesday, September 13, 2006

A penny for your thoughts?

Fresh from awarding 900 executives nearly $1B in bonuses, MSFT's Board of Directors apparently found some spare change that spilled over from the executive feeding trough, and decided they'd better give it to us pesky, complaining shareholders:

In case you're following the math, that penny per quarter increase amounts to ~ $400M more per year, split across all shareholders (including insiders who hold some 15% of shares outstanding). 900 executives split $1B while every shareholder combined split an extra $400M? [cue the old Sesame Street song: "One of these things, isn't like the other; One of these things, doesn't belong"]. But wait, I'm sure the execs will point out that the $1B was for 3 years of performance, not just one. You know...the past 3 years where they managed to lose 10% of our shareholder value and underperform the market by a net 40%? Er...well maybe forget that argument.

Anyway, based on today's closing share price, that $.01/qtr. increase will take MSFT's yield up from the current 1.39% to ~1.54%. To put that in perspective, 1.54% should see MSFT move from #26 on the list of DOW 30 stocks to maybe #23. On the S&P 500, where the average yield of dividend payers is 2.06%, it will move up from #233 to maybe #226. INTC, by contrast, currently pays a dividend of 2.03% - or just below that latter average. And keep in kind that MSFT has one of the poorest 1 and 3 year stock performance records in the DOW 30 and has badly lagged the S&P since 2003. So I guess the pitch to current and prospective shareholders is "Hey, get the worst of both worlds: a below-average dividend and abysmal stock performance". And to think that people aren't tripping over themselves to buy the stock - go figure.

That aside, if MSFT sticks to the recent plan of major buybacks that actually result in a reduction of shares outstanding (versus the '00-'05 plan that saw $40B+ of shareholder cash spent on buybacks which were completely offset via dilutive payments to insiders, the net result being that total shares actually INCREASED), then I'd prefer to see the money used for that. MSFT has far too many shares outstanding, and anything that can be done to address that should be in the long term best interests of shareholders (assuming that management doesn't turn around and start diluting the hell out of the stock again). In the meantime, yearly one cent increases in the quarterly dividend, while not insignificant in % terms, aren't going to do much to alter the fact that MSFT's yield badly lags the S&P dividend-payer average and most of its DOW 30 peers. As such, it's really rather insulting especially given MSFT's strong cash flows and the $1B SPSA bonus mentioned above. But then MSFT's current management love to play their endless hide-the-pea shell games in lieu of actual performance. And I'm sure they're smart enough to know that having underperformed the market for the fourth straight year, losing $6B+ more of shareholder value and nevertheless treating themselves to $1B in bonuses, they need something to take focus off that dismal track record prior to the upcoming annual shareholder meeting. So expect to hear all about that "money returned to shareholders" via bigger buybacks and increased dividends. And of course, no reference to the stock lest us dumb sheep run the actual numbers and note that, despite all this money supposedly being "returned" to us, we once again ended the year worse off on a net basis than we started it.


  • Totally agree with you here. I saw the headline on the news ticker and immediately, gee maybe I'll wait now to sell my pittance of shares that I now need to live on (because our pay sucks)...and then I saw the amount of the increase and laughed myself into a stupor. But that stupor helps me enjoy the work more...because now this is just insane. Why bother with passion for the company...they certainly don't have passion for me or for the shareholders.

    By Anonymous Anonymous, at 8:40 PM  

  • Good analysis as always. One thing I'm sure you know about the outstanding share count is that the company has strived to maintain a steady 10B shares outstanding for as long as i can remember. Most buybacks usually get us back to a steady state. One should be really worried if we ever see that number going substantially higher than 10B. Right now, we are at 9.97B shares, which is lower than I remember seeing it in a lot of years. Couple that with the hiring (and associated grants and spsa awards) we've done over the past 5 years and it's really not as bad as it sounds. (and no, I'm NOT a partner!)

    By Anonymous Anonymous, at 8:11 AM  

  • "One should be really worried if we ever see that number going substantially higher than 10B."

    Agree. FYI, at its worst, I believe it got as high as ~10.8B. IMO, that's why MSFT opened up the sluice gates on the buyback towards the end of last year. Had they not done so, the $30B multi-year buyback would have been completed without reducing shares outstanding at all (like all the buybacks before it). To avoid that, they ended up having to spend more on buybacks last year than the company made in income. But it worked, and last year was the first fiscal this decade that MSFT exited the year with less shares than it started. Unfortunately, dilutive grants to insiders also went up big time on the year, reversing the post '00 trend of reductions, and guidance was given to not expect any further declines moving forward (I guess that was code for the recent $1B SPSA).

    By Blogger MSFTextrememakeover, at 8:33 AM  

  • Story that needs to be told: for the first time in company history, stock options expiring will be worthless (this will happen this week) for some lucky souls.

    By Anonymous Unbelievable, at 9:27 PM  

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