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Microsoft dividend has tiny impact on local economy

By Drew DeSilver
Seattle Times business reporter

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Last week, Microsoft sent out $32.4 billion in dividend checks to grateful shareholders — $3 for each of the software giant's 10.8 billion shares outstanding. Given how many Microsofties live in the Seattle area, the one-time payout should give the local economy a big shot in the arm, right?

More like a gentle pat on the back. Local merchants will never see the vast bulk of that cash, analysts say, and any economic impact likely will be minimal.

"It'll probably be perceptible but not significant," Seattle-area economist Dick Conway said.

Why? Start with the fact that the dividend won't actually make anyone any richer.

A stock's price, at least in part, is based on the future dividends shareholders expect to receive. On Nov. 12, the last day you could buy a share of Microsoft and get the special dividend, Microsoft stock closed at $29.97.

Since then, Microsoft shares have dropped almost $3, reflecting the fact that new buyers won't get the special dividend. The bottom line: Someone who owned $3,000 worth of Microsoft stock a month or so ago now has stock worth $2,700 and a check for $300.

Next, consider that corporations and foreigners own a lot of Microsoft stock.

Global Insight, a national economic consultancy, estimates that $8 billion of the dividend will go overseas or into corporate bank accounts; state and local governments, also big Microsoft shareholders, will get about $300 million. That leaves $24.1 billion as personal income.

Two Washington state residents, Bill Gates and Steve Ballmer, will get big chunks of that $24.1 billion.

Gates, with about 1.09 billion shares as of the dividend record date, will receive around $3.28 billion; Ballmer, with nearly 411 million shares as of this past August, stands to collect more than $1.2 billion.
 
But neither man is likely to go out and buy, say, Orcas Island. In fact, their spending behavior probably won't change at all. (Gates plans to donate his dividend payment to the Bill & Melinda Gates Foundation.)

"Forget Gates and Ballmer and [Paul] Allen," said Bret Bertolin, senior economic forecaster with the state's Economic and Revenue Forecast Council. "When they need cash, they just sell some shares. They don't need to wait for a dividend check."

The same applies to a lot of other Microsoft shareholders, who tend to be on the affluent end of the scale and are unlikely to go on a spree with their checks.

Most of their dividends will be saved or reinvested; as far as the broader economy is concerned, it's as if they sold 10 percent of their Microsoft holdings and invested the money someplace else.

About 5 percent of the payout, Global Insight estimates, will go into public-employee retirement funds; even more will flow into 401(k)s and other individual retirement accounts, where it will remain until the holders retire.

All in all, Global Insight says, only about 6.25 percent of the total payout, or $2.03 billion, is likely to actually be spent by individuals.

Microsoft says Washington residents hold about 1.8 billion of the company's shares; exclude the 1.5 billion Gates and Ballmer own, and you get 300 million shares owned by lesser mortals.

Three hundred million times $3 is $900 million; 6.25 percent of that is $56.5 million, the total amount Washingtonians can be expected to spend of their windfall.

Which still sounds like a lot, until you realize that in last year's fourth quarter Puget Sounders spent $14.8 billion in taxable retail sales alone. Compared to that, $56 million is barely a flicker.

Concludes Bertolin: "It's sort of meaningless as far as the economy is concerned."