Microsoft To Pay Dividend For First TimeMicrosoft To Pay Dividend For First Time

Responding to a heightened appreciation among investors for corporate dividends, Microsoft said Thursday that it would pay an annual dividend for the first time in its history. Following a two-for-one stock split on Jan. 27, which Microsoft also disclosed Thursday, the payout later this quarter will be 8 cents per share. The decision comes just two weeks after President Bush unveiled an economic-stimulus proposal that would eliminate taxes on dividends.

Disclosure of the dividend and stock split coincided with release of financial results for Microsoft's second quarter, ended Dec. 31. The company reported record revenue of $8.5 billion, a 10% increase over the same period a year earlier, and net income of $2.6 billion, an increase of 12%. Microsoft officials attributed the revenue growth primarily to increased sales of its Xbox video-game system, recognition of unearned revenue from multiyear licensing deals in previous quarters, and strong sales of server software. "It's fair to say we gained share in each server category," CFO John Connors said in a conference call with financial analysts.

Microsoft's desktop operating-system business continued to be its biggest revenue generator, pulling in $2.5 billion in the quarter, compared with $2.6 billion a year ago. However, that business was the only one of Microsoft's seven product segments that failed to grow. The company's desktop applications business increased 8%, to $2.3 billion; server platforms jumped 12%, to $1.8 billion; and business solutions shot up 85%, to $135 million. Microsoft attributed the majority of the increase in business-solutions revenue to its acquisition last year of applications developer Navision. Microsoft's other segments--its MSN network, mobile products, and home and entertainment systems--all showed revenue growth as well.

The revenue and earnings increases came despite what Connors characterized as a challenging economic environment of single-digit PC growth and soft demand among business customers. The near-term outlook isn't much better: "Our view continues to be [that] there has not been much change in the health of the PC ecosystem," Connors said. "The demand from business customers continues to be challenging."

Connors described the stock split and dividend as "a long-term commitment" to shareholders. When asked by analysts about the size of Microsoft's first dividend, Connors replied, "You could probably characterize [it] as a starter dividend."