If you thought the era of better living through financial engineering died with Lehman Brothers, have a look at Microsoft.
The ubiquitous computer software company has decided to borrow as much as $6 billion at the same time as it is increasing its dividend by 23 percent, despite sitting on a $36.8 billion cash hoard and generating more every day.
It reminds me of the old Saturday Night Live skit about the “Bank of Change,” which existed only to turn dollars into quarters and pennies into dimes. “How do we do it?” their pitchman said, “Volume.”
Microsoft’s shares fell more than 2.5 percent on the news, but mostly because investors had hoped for a bigger return of cash, presumably financed by a bigger bond issue.
It looks as if Microsoft will pay out about $5.6 billion annually in dividends, quite close to the size of the bond issue and perhaps a quarter of the free cash the company is likely to generate in fiscal 2011.