http://money.cnn.com/2004/07/20/technology/microsoft/index.htm Two side stories here worth noting: -- It's the first super-sized dividend since the dividend tax was cut to 15%, which plays well for both sides of that debate. People in support of the lower dividend tax say that MSFT's move is a victory since it means lower taxes for hundreds of thousands of small-time investors. Opponents can point to Steve Ballmer, who is going to save about $240 million in taxes on his $1.2 billion dividend payment. Nice payout for Steve, who needs more money like Dave Chapelle needs more people yelling "I'm Rick James, bitch!" at him. (Bill Gates is getting $3.5 billion but he pledged to give all of it to charity.) -- Is this the official end of the technology era? MSFT had so much cash in hand for years so that it could buy up any other company it wanted. By paying the dividend, they're tacitly saying that they don't see a better way to spend the money. And after the $30 billion euphoria wears off, I think tht will be the long-lasting story here.
Just say this to yourself over and over. "It's their money. Not Mine." 1000 times outta do it. Good point here. When I see a company that pays a dividend I see a dinosaur that moves slowly and gets eaten. We are probably dealing with a different animal with Microsoft, but, I really hate to see em move to the class of dividend-stock.
... But the tax cut was passed as an economic stimulus, not based on philosophy. As economic stimulus it's not the best. I would have given companies tax-deductibility on dividend payments, since that would concentrate the tax cut in a centralized source more likely to invest in long-term growth vehicles like R&D and equipment. For Ballmer, the $1.2 billion is essentially employment income. Why someone like him should pay a lower rate in taxes from the rest of us for doing his job has yet to be answered.
And, on top of that, I'm a bit sickened by the House sinking a measure a couple of days ago, that would have required stock options to be fully expensed. Apparently, the arguments against it were that it would create "disincentives". Both parties suck.
Well, the stupider thing about that bill they passed is that it would only expense options for the "top 5". What, options only have value for the top five? It's either everybody's options deserve to be an expense, or nobody's. Anything in between is totally illogical. Generally, Congress should have nothing to do with FASB ever. I just hope the Senate stays away from this completely. The WSJ this morning said, though, that they may attach the House bill as an amendment to a "must-pass" appropriations bill, basically avoiding the Senate vote entirely and forcing Bush to sign it.
You may think it's "essentially" employment income, but the fact that the value of that stake is at financial risk based on the price of MSFT stock is an important distinction. The majority of that $1.2 billion dividend is based on shares he earned over the previous 25 years, not this year; those years of risk with the asset do distinguish it from current income. Maybe not to your satisfaction, and you may not think he ever should have been paid so much stock, but it is still stock. Personally, I think Microsoft should offer to pay for the reconstruction of Iraq.
Legally, yes. However, stock options are compensation, and I think the law should treat them as such.
First of all, you can make the same case with anybody's pension money. Second, I know that most of those shares have vested and Ballmer could, if desired, sell those shares on the open market. (Good luck trying without the MSFT price getting battered, though that's another issue entirely.) But I also know that he didn't buy them. He's the CEO, and CEO compensation should be based on share price and TSR continuously. His is, which is good for investors. I don't fault him for owning 411 million shares of a company that he helped build into a global powerhouse, and I don't fault MSFT for giving them to him. My concern is that executives who get restricted shares and options are not taking on the same risk as people who put in their own capital to buy at 100% of market value at the time of purchase, yet they're being treated the same in the tax world. And that tax world is preferable to them than it is to people who don't have oodles of stock given to them by thier companies. He's going to pay a lower tax rate on that $1.2 billion than I am on my annual cash bonus check. That's regressive taxation. And if Iraq decides to declare itself purely an open source country, they could finance the next invasion.
I'm sorry. I should have slowed things down a bit for you. You said: Spend as much money as you want, oh Congress, we'll get the evil rich to pay for it... in response to Dave's deficit comment. I was pointing out to you that Dubya advanced a government entitlement program that will cost over $500 billion over the next ten years for his prescription drug plan. While it is true that congress passed the bill, it was from intense pressure from Dubya. I felt it was my duty to point out that it is the republican president and congress that is spending like a sailor on shore leave in Singapore on pay day while giving tax cuts to the "evil rich". I don't mind the whole Microsoft dividend thing.
It's interesting also that MS is becoming a "dividend company". MS makes the majority of their money on only two of their products: Windows (the OS), and MS Office (the office productivity suite). Well, those two product types are quickly becomming comoditized by the likes of Linux (the OS), and OpenOffice (the open source office productivity suite started by Sun Microsystems). There are other examples of this as well, which I won't get into now. But with MS's big cash cows becoming comoditized, and the fact that they already have 95% of those completely saturated markets, means that there is little or no growth opportunity for MS in those areas over the long haul. MS is trying to fight this by expanding into other markets (Xbox, MSN, Great Plains ERP, etc), but has yet to make any money in those ventures. They are also trying to fight it with FUD, Monopoly and anti trust activity, forcing unecessary upgrades, and building up an arsenal of bogus patents (a patent on double clicking - WTF???). But those are issues for another thread on another day. The bottom line is, MS stock is not looking very attractive these days, at least in the long run.
And the markets go wild on the news! Oh wait, they don't. So how are we supposed to interpret the fact that a $3 per share dividend in December at a 15% tax rate is only worth 85 cents today (as of 1:30 pm EDT)? Was the value built in due to investor expectations of such a move, or are investors discounting its value due to the perception of MSFT moving to a low-growth company?
Well not really. Stock is a compensation and different from options. All options do is reserve stock for you at a certain price, when you want to excercise the option you have to buy it first, then sell it. Of course if the price has gone up, then you make money, but if the price has gone down the options are worthless. They also expire after a period of time, usually 10 years, so if at the end of 10 you haven't excercised them, you loose em. The option price is determined by market value on the grant date. With a stock that simply doens't move much, as MSFT probably won't, options are no big deal.
Well, really they are. Companies need to have shares set aside to cover options exercises, and those shares can be gotten only through a new share issuance (which increases shareholder dilution) or by buying them on the open market (which is a real cash cost). Both of those actions have a cost to shareholders even if they don't have value to the recipient because those shares have to be held in reserve until the option is either exercised or it expires, regardless of how underwater it might be. [compensation geek mode]We can, however, haggle over FASB's proposed valuation methods - personally I think a mark-to-market expense is much better than Black-Scholes or the totally insane lattice models like binomial that nobody understands, or at the very least allow for a clawback if the options expire unexercised. But they are an expense in some fashion and they should be accounted for.[/compensation geek mode]
This thread interests me, but I can't say why. I'm not sure whether we're talking about long-term capital gains, budget deficits, expensing stock options, executive compensation, tax reform, retained earnings, patent infringement, antitrust actions, or whether DaMarcus Beasley's transfer fee was adequate. Keep up the good (and sporadic) work here. As my contribution to furthering the discussion, I wonder whether the Bush administration will let Bill Gates use the $3.5 billion dividend to buy more AIDS vaccines for programs that do not preach abstinence only?
My investor perception is that the whole market got hammered today. Everyone should already know that MSFT is not a growth company.
Well, they make a pretty good mouse and some nice, relatively easy-to-setup wireless routers. Used to make a nice joystick. Still make good gamepads. OS and productivity suites might be commodities one day, but we're not there yet. Most people aren't ready to compile their own OS. If I'm going to buy a distro ($70), I just as soon by XP ($80). Windows is a household word: SusE, Red Hat and Mandrake are not. MS also seems pretty tied in to the main distribution channels. The day Dell starts offerring Red Hat as a serious option, then MS will have competition.
A few things: 1) You don't have to compile your own OS to use Linux. Just get a distro, either for free download (or purchase a $5 CD), or pay for a boxed set with all the goodies and support and documentation for $70 - $80. 2) A full version of Windows XP (not the upgrade, but fresh install) cost retail $200. And those $70-$80 boxed sets of SuSE, Mandrake, and Red Hat include a universe of extra software (open source), the equivelant of which on Windows XP would run in the neighborhood of $2500. That would include MS Office for $500 (OpenOffice and other office programs on Linux free), Visual Studio for $1500 (full enterprise version, to compete with the plethora of IDEs and development tools bundled with Linux distros), and tons of games that run from $20 to $80 (tons of games are bundled with Linux distros). So in short, a full boxed version of a Linux distro (Mandrake PowerPack, or SuSE Professional), that goes for $70 to $ 80, would cost in the neighborhood of $2500 in the Windows XP world. All that said, MS is in no danger of loosing their home desktop dominence any time soon. They have hardware support ubiquity, software/games targeted for Windows, and consumer mind share / familiarity, all to lock the consumer market in. But MS still can't grow that business, with 95% market share of a completely saturated market. It can only remain the same or go down. And Linux is providing downward pressure on price. Linux is also competing vigorously in developing computing markets like Brazil and China, who don't have an established Windows market or consumer lock in. Also, Linux is gaining more and more market share in the enterprise, particularily in servers (which is a very lucrative market that MS desperately wants). Linux is acting like Chinese water torture on the MS beast, gradually bringing it down to earth and forcing it to compete by providing better service, better pricing, and hopefully, eventually, better software.