Eric Jackson Feels Microsoft Should Pay A Fat Dividend

According to an article by Eric Jackson on TheStreet, Microsoft (NASDAQ: MSFT) stock is not moving, despite the launch of a new Office suite and massive upgrade cycle. Investors have been waiting for the past four years now for the company to put its act together. When MSFT was trading at $23 four years ago, David Einhorn, President of Greenlight Capital fund, had said that the stock is dirt cheap. After four years after, the stock is back to $23.

Several good things are happening at MSFT, and investors are hoping to hear from the company regarding cloud computing and its Client, Office and Business divisions. However, as Microsoft has mercifully stopped any progress on its Kin phone, it is unlikely to announce any plans on diversifying to mobile-connected devices.

The company has a lot of cash in hand, more so after it dug its toes in the debt markets. However, MSFT CEO Steve Ballmer, while backtracking from the Yahoo (NASDAQ: YHOO) deal two years back, seemed to have made up his mind to stick to the “Microsoft DNA: Not Invented Here” mantra, which means that "we'll build products ourselves or we won't compete in those areas at all."

With transformative acquisitions out of question for the time being, the major question in everyone’s mind is, what should Steve Ballmer do that would make investment bankers salivate over the company? Eric believes that Microsoft should raise its dividend. He points out that at current levels, investors are getting an annual yield of 2.2% on Microsoft, while yield on the 10-year note is currently 3%.

Although MSFT will have to shell out $4.5 billion annually if it doubles the dividend yield, it has $37 billion of cash on hand and is generating $22 billion of operating cash annually. Eric stresses that a fat dividend will definitely attract modern-day investors.

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