Debunking the Microsoft Dividend

By now you no doubt have heard that Microsoft will be paying $3 per share in dividends to shareholders. Yahoo finance says there are about ten billion shares so $30 billion will be paid. This has created a buzz because a lot of market participants think that the $30 billion will be reinvested back into stocks.

I’m gonna say I don’t think so, at least not to the extent that a lot of people are hoping for. About 46% of the shares are held by individuals. Thats a lot of odd lots and other positions under 200 shares. My point is that a lot of the $30 is going to be paid a few hundred dollars at a time. Most stock investors are not going to immediately buy $200, $300, or $400 of stock because of the commission expense. The dividend for those folks will likely end up in a money market for while. Bill Gates stands to get $3 billion for his dividend. Am I the only that thinks most of that money is going the various charities supported by his foundation?

The institutional holders will reinvest the dividend, this will be in the neighborhood of $17 billion. I think a best case scenario might be $20 billion getting reinvested. I would not be surprised if specialists and market makers have already accumulated some inventory to meet demand. If that is correct that will take some of the steam out of the lift expected my some pundits.

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