Q&A: Profits passed on to investors
Seattle Times technology reporter
A. Dividends are a portion of a company's profits that are paid to investors, usually every quarter or twice a year, on a per-share basis. Dividend payments are taxable as regular income, although President Bush recently proposed the elimination of that tax.
Q. What is Microsoft's dividend?
A. Yesterday, the company announced its first dividend: 16 cents a share. After the company's 2-for-1 split on its common stock — also announced yesterday — the dividend is 8 cents a share. Microsoft said it will pay dividends once a year. Each year, its board of directors will determine when the dividend should be paid and how much.
Q. Who gets the dividend and when?
A. Shareholders of record at the close of business Feb. 21 will receive the dividend, which is scheduled to be paid March 7.
Q. Do other companies pay dividends?
A. Dividends fell out of style in recent years, as companies caught up in the tech boom decided to put that money back into business development. Some of the more traditional companies have continued paying dividends. Boeing paid a dividend of 17 cents a share every quarter last year, while IBM paid 14 cents in one quarter and 15 cents in the other three.
Q. Compared with those payouts, Microsoft's annual dividend of 16 cents doesn't seem like much.
A. It could change in the future. Microsoft said its board will continue to evaluate whether to pay a larger or smaller dividend annually, keeping in mind the company's business risks and expenses.
Q. What can you do with a dividend payment?
A. Reinvesting is a great way to accumulate more shares of stock without taking any money out of your pocket, said Michael Boone, owner of a Bellevue financial-planning and investment-management company. Another option is to take the cash. A retiree might want to spend the money, Boone said, while those who haven't hit retirement age should consider reinvesting.
Q. Do dividends really benefit investors?
A. Investors who have portfolios of hundreds of thousands of shares will benefit, especially if they reinvest the dividend payments. People who own only a few shares could maybe buy an extra latte at Starbucks.
Q. Could Microsoft's dividend encourage other companies to follow suit?
A. Perhaps, but a bigger motivator could be the removal of the dividend tax for investors, Boone said. If that happened, companies could face increasing pressure to pay dividends.
Kim Peterson: 206-464-2390 or email@example.com.