Bill and Steve didn't need cash dividends to buy stuff. They would get loans, and the value of the shares they held would make them good loan risks. This is the same reason why Trump inflated the value of his real estate holdings (which he's now being tried for in NYS), so he could get favorable loan rates.

@Barmar: Borrowing against your stock risks you getting called if the stock declines, and it doesn't solve the fundamental problem Bill and Steve had: Microsoft had literally more money than they knew how to spend. Google solved this problem by incentivizing employees to find new lines of business, but Microsoft's internal culture at the time was one of protecting existing baskets of eggs, not finding new ones.

I don't think they actually used their stock as collateral. If someone has a billion dollar net worth, a bank will give them a $100K unsecured loan because they know it's a safe risk.

So is your position that dividends are good for all owners (stockholders), just the major owners, or no one? I would argue that they treat all stockholders equally, just proportional to their ownership (everyone gets the same amount per share).

@DStanley: No. My position is that if you want to understand the reasons why companies issue dividends -- which is the question that was asked -- you should focus on whether the people making that decision stand to benefit personally from the decision!

@Barmar That's like having a large pile of cash and borrowing money using the large pile of cash as collateral. Why in the everloving God's name would you do that? Why not just spend the cash? One reason is that you think the cash pile will get bigger, but Bill and Steve apparently didn't think that. It can get smaller, too.

@Barmar, ah, the unsecured loans and then using the money borrowed with unsecured loans to get secured loans. You can seemingly become rich enough to become US President with this strategy.

@user253751 Exactly the opposite. Stock is not a pile of cash, because you have to sell it to get cash. But you don't sell something that you think will become more valuable. So you take out a loan and hold on to the stock.

@user253751 But when you take a dividend you have to pay tax on it, so it's not worth as much as the original cash. There's no tax on a loan.

@Barmar it's a tax deferral strategy, since you still have to eventually come up with hard cash one way or another. The goal is often to defer it until you die, when it gets waived.

@user253751 Exactly. Taking dividends doesn't defer taxes. Buy-and-hold does.

@user253751 See my answer. Dividends are not for wealthy investors, who don't need the cash. They're for small investors who are using investment income to pay their bills.

Why couldn't large investors achieve the same transfer of cash through a quarterly share buyback scheme? That would allow investors to make their own decisions about when to draw income from their investment, and the income would be classed as capital gains at lower tax rates.

@craq Buybacks are popular with a lot of people because they are more tax efficient than dividends, especially for people with high incomes. The thing is that, while they drive the price of the stock up, you still need to sell shares receive cash. If you are worried about retaining control over a company, that might be a reason to prefer dividends. Also, I don't think buybacks always work out. Didn't IBM spend a ton on buybacks with little to show for it?

@JimmyJames if you're worried about retaining control, then don't participate in the buyback and don't sell your shares. Investors can choose to marginally increase their ownership (sell none while the total number of shares decreases), keep it the same (sell the same fraction as the company is buying), or convert ownership to cash (sell more). There are too many factors influencing any one company's share price to say that it is affected by buybacks. I could point at several companies whose valuation has dropped over time while paying dividends.

@craq "then don't participate in the buyback" That's not really how buybacks work, at least not typically. The shares are bought on the open market, not from particular individuals. That aside, I think you are missing the point: if Paul Allen wants some cash to purchase a yacht or something using money from his MSFT shares, if he gets a dividend, he gets the cash and keeps his shares. But that isn't the case with buybacks.