Microsoft (NASDAQ:MSFT) investors are hoping the world’s largest software company will substantially increase the payments they get for the “privilege” of owning its stock. And they probably will continue to wait.
According to Bloomberg News, the Redmond, Wash.-based company probably is going to raise its dividend by 19% as early as this week, which is what it did last year. But investors are clamoring for more, especially because Microsoft is sitting on a $52.8 billion pile of cash.
“While Microsoft’s board is aware of the shareholder demands, it will probably stick with the usual increase, a person familiar with the board’s thinking said,” Bloomberg reported.
Microsoft investors are right to be angry. Shares of the company have slumped 6.6% this year, underperforming the S&P 500, which is off 4.5%. The dividend is nothing to write home about, either.
The five-year average yield of the payout is a skimpy 1.94%, well below the 2.25% seen in the S&P 500, according to Reuters. Bloomberg notes that Microsoft has paid about 25% of earnings as dividends since starting the payments in 2003 — well below the 40% to 50% paid by similarly sized companies.
Microsoft’s days as a growth stock are long gone. Revenue at the company — which has sold about 450 million Windows 7 licenses since it launched in 2009 — is forecast to rise more than 6% in the next two quarters and the current fiscal year. Google (NASDAQ:GOOG) and Apple (NASDAQ:AAPL) are forecasted to grow by double digits.
Remember, Microsoft only began paying dividends because investors complained about the size of its $43.4 billion cash horde. If MSFT wants to get shareholders off its back — and doesn’t want to dramatically increase its dividend — it will need to pull off a transformative acquisition. The trouble is Microsoft has tried to do this before and failed.
In 2007, the software giant bested Google and Yahoo (NASDAQ:YHOO) for the right to buy a 1.6% stake in an upstart company called Facebook for $240 million. Microsoft’s offer to buy Facebook for $15 billion was later rebuffed by Facebook CEO Mark Zuckerberg. That turned out to be a smart move on Zuckerberg’s part as media reports peg Facebook’s value at $66.5 billion.
Microsoft then offered $46.6 billion for Yahoo and was turned down flat by CEO Jerry Yang in one of the biggest bonehead moves is modern corporate history. The Internet portal, which recently fired CEO Carol Bartz, now has a market capitalization of $17.9 billion.
There also have been rumors that Microsoft wants to buy Twitter ($8 billion to $10 billion market value), Maybe the company could go after game developer Zynga ($7 billion market value), Groupon ($25 billion valuation) or, if it really wants to grab a bargain, AOL (NYSE:AOL), which has a market cap of $1.65 billion.
Microsoft can afford both a major acquisition and a dividend hike. Sitting back and waiting for something to happen will do little to soothe the already frayed nerves of its investors.
Jonathan Berr does not own shares in the aforementioned companies. Follow him on Twitter at @Jdberr.
