Note: I have kept this article here as a standard bearer for any future situations where corporate management offers one of these types of deals. It is a rip-off.
A bash giveaway of $3 per share in cash dividends and buybacks...good or bad??? It depends on your perspective. Consider that the company is going to get drained of an important asset and consider who is going to get that money. Will it help the economy? ....yes, it is. But it is not Microsoft's job to aid the economy. Many of the people receiving the money may not even be dedicated shareholders from way back. Insiders with huge amounts of stock will get a fortune in cash while the smaller shareholders will not even be able to buy a car. Gates stated that he would give his share to his charity foundation. Great! So now a huge amount of Microsoft cash will support his pet project. The bigger shareholders will get a fortune while people with 1000 or 2000 shares will get enough for an afternoon bash at a furniture store to help the economy. This whole affair is pathetic and Microsoft has become a pathetic situation in the business world. When a company has so much money that it cannot invest it more wisely than the guy on the street, it can only be called stagnation of the highest order. Gates is, in essence, admitting that growth is no longer the objective. He has so much money for himself that he is not willing to work for the shareholders as he once did when he started the company....and this is the problem. His drive is no longer to build but to give away....and he is willing to give away Microsoft. He is turning Microsoft into a public service company. Once the managers at Microsoft witness the giveaway, it will have an adverse effect on them......why try so hard to make money....Gates will only give it away to those not working there. What about the buyback of shares. Well, it has not been said as to what will happen to those shares. Will those shares that are bought back going to be given away as well at a later date. There are so many shares now that a reduction will not have much effect on the trading value....except that Microsoft will not have to work as hard to show a better earnings per share in the future. There is a cost to everything. Gate's close management buddies welcome the idea of the dividend. They will get a huge amount of money at a lower tax rate. These guys are draining Microsoft for everything they can before retiring at an early age. I have seen this type of dividend play before with other firms. It would be okay if the dividend was to be raised. However, the idea of a one time payment of this magnitude is nothing but a rip-off.
For a company that has attained its stature by keeping its focus on "logical" products, it is unfortunate that Microsoft is now deviating from that focus.
Microsoft: An Example of a Rip-Off