So Microsoft has decided to raise its dividend and that is certainly good news. How they intend to pay for it says a lot about US economic policy and it isn’t good (via Bloomberg):
Microsoft is planning to sell debt this year to pay for dividends and share repurchases because much of its cash is held overseas, a person familiar with the matter said last week. The company will try to raise as much as possible without jeopardizing its debt rating of AAA, the highest available, said the person, who declined to be named because the plans are confidential and not completed.
Microsoft has $36 billion in cash but roughly three quarters of that is stashed overseas avoiding the US corporate income tax. So instead of just paying dividends out of that cash pile, the company is issuing debt to make the payments. What? The biggest problem with our economy is that we are too deep in debt and current tax policy makes it more attractive to issue debt than repatriate overseas profits. Our economy needs, more than anything, capital investment and tax policy makes it more attractive for US companies to invest abroad. Maybe we deserve our current economic circumstances for allowing politicians to enact such stupid policies.