Software giant set to pay out $75b

Microsoft Corp. yesterday answered one of Wall Street's most persistent questions -- what the software goliath would do with its ever-growing pile of cash -- by disclosing plans to return up to $75 billion to its stockowners over the next four years.

The company, based in Redmond, Wash., said the payout would take three forms: a one-time cash dividend of $3 a share, a doubling of its annual dividend to 32 cents a share, and stock buybacks totaling as much as $30 billion through 2008.

''It's smart," said Laura DiDio, senior analyst for the Yankee Group research firm in Boston. ''This makes them look munificent, instead of malevolent. Wall Street doesn't like to see any company, no matter who they are, sitting on money and not doing anything with it. And let's face it, their stock has been stagnant for quite a while."

Microsoft's move was foreshadowed in a letter to employees early this month by chief executive Steve Ballmer who, in explaining the company would be launching a $1 billion cost-cutting program, noted that Microsoft's cash holdings belonged to its shareholders.

The company's current cash horde of at least $56.4 billion is roughly five times the total annual profits of the top 100 companies in Massachusetts. By spreading its dividend yields and stock repurchasing over four years, the company will retain enough principal not to deplete its cash, analysts said. ''This certainly won't bankrupt them," DiDio said.

In a teleconference with securities analysts and reporters yesterday, Ballmer cited a number of legal settlements he said were preconditions for the payout. Among them were its resolutions of the long-running antitrust case with the Justice Department. The company has also settled about three-quarters of the related state class-action suits and private lawsuits.

''We think we have put many of our legal issues in the rearview mirror, so to speak, which makes it possible for us to move forward with this cash management plan," Ballmer said.

Ballmer said the one-time dividend, however, would be conditioned on Microsoft shareholders approving changes to the company's stock compensation plan designed to protect employees from a possible drop in stock value stemming from the dividend. The dividend would be paid Dec. 2 to shareowners of record on Nov. 17.

Within the investment world, reaction to the Microsoft move was enthusiastic. ''Dividends are a sincerity barometer," said John Dorfman, president of Dorfman Investments, a money management firm in Newton. ''When a board of directors raises a dividend, it indicates that they think that their current earning level is sustainable."

Investors, often distrustful of management in the wake of the corporate scandals of recent years, look to indicators such as dividend boosts and insider stock purchases for confidence, Dorfman said.

Microsoft co-founder Bill Gates, now the company's chief software architect, promised the payout would not deter the company from ''a record investment in innovation" that should result in multiple new products, in domains ranging from search to security to speech recognition, in coming years. Microsoft spends more than $6 billion annually on research and development, and Gates said the company planned to file for a record 3,000-plus patents over the coming year.

''Our past success allows us not only to return money to shareholders, but also to invest in R&D at record levels," Gates said in the teleconference. ''Breakthroughs are coming, breakthroughs like speech recognition, ink recognition, systems that are automatically secure."

Yesterday's move was an acknowledgement that, while Microsoft continues to invest in technology research and products, its executives saw few other attractive investments in the current market environment. Microsoft has purchased a number of smaller software companies in recent years but has avoided potentially disruptive megamergers, like Hewlett-Packard Co.'s acquisition of Compaq Corp.

Microsoft officials also have been working to soften their bullying image by stressing their commitment to customers and shareholders, which include their own employees. ''They no longer want to be the number one company that everyone loves to hate," DiDio said.

Ballmer bristled, however, at a suggestion that Microsoft was becoming a mature company no longer capable of the explosive growth it enjoyed in the 1990s. ''When we look out over the next several years," he said, ''I'm confident we have some of the greatest dollar growth potential out there of any company in the world."

Robert Weisman can be reached at weisman@globe.com.