Microsoft announces lowest dividend increase for three years

SOFTWARE REDEVELOPER Microsoft has slowed the growth of the dividend it provides to shareholders.

Microsoft's share price has stagnated for the best part of a decade as the firm failed to get into important markets such as the web, entertainment, smartphones and tablets. Now the company has announced that it will raise its dividend by 15 percent to 23 cents a share, which is significantly lower than the 25 percent and 23 percent increases it announced in the previous two years.

Unlike Apple, Microsoft's shares are traded not for a quick buck on price changes but are held for its stability and above all its dividend, which provides a steady income for institutional investors looking for low-risk bets. However if Microsoft continues to cut its dividend increases, investors could find other places to stash their cash.

Microsoft's dividend yield is now at 2.9 percent, according to Reuters, which is considerably lower than Intel's at 3.9 percent. To put these figures into perspective, Intel recently revised down its earnings forecast despite Microsoft's Windows 8 operating system being expected to boost PC sales.

Microsoft's dividend announcement might also forewarn of Windows 8 success, as the firm's CFO Peter Klein told investors that its dividend follows the sales trend of its operating systems. Given that Microsoft is about to launch Windows 8 this year, one would have thought the firm would have posted a dividend increase higher than the previous two years, during which the firm didn't release a desktop operating system.

If Microsoft's shareholders start losing faith in the company then the writing could be on the wall, but its dividend margin is still on the high side for technology firms, thanks in large part to the firm's lackluster share price. However, the firm could find that its share price might take a nosedive if Windows 8 doesn't hit the sales figures that investors have come to expect. µ