At Microsoft Corp.'s annual meeting in November, shareholder after shareholder stood to ask why the world's most valuable company was sitting on more than $40 billion instead of sharing the wealth.
"We need a reason to hold the stock," one said. "We need a dividend."
Even though Microsoft's biggest risk had evaporated as a judge approved its antitrust settlement with the Justice Department, executives stood firm.
"The board has determined it would not be appropriate to commit to a long-term program like a dividend," Chief Financial Officer John Connors told the crowd.
Last week, Microsoft reversed course, declaring the first dividend in its history and leaving many investors wondering what had changed.
Some thought they saw the hidden hand of politics, as the Bush administration had just proposed eliminating taxes on most dividend income and could use the public vote of confidence. Others wondered if consumer advocate Ralph Nader, who a year earlier cited an obscure tax law in demanding a Microsoft payout, might have belatedly struck a nerve.
In the end, the board's unanimous vote on the morning of the announcement was driven by many factors. And one factor that has attracted almost no notice was among the most significant.
Microsoft shares are so widely held that some analysts say there is little pent-up demand that could boost the stock price. Many "growth" funds already have all the Microsoft shares they can handle. By offering even a modest dividend, Microsoft makes itself available for billions of dollars in "equity- income" funds and other funds that generally invest only in stocks that pay dividends.
"There's this whole universe of funds that need or want dividends that is untapped," said Sanford Bernstein analyst Charles di Bona.
Said Eugene Munster of U.S. Bancorp Piper Jaffray: "The simplest reason is the correct reason -- it opens them up to a new breed of funds."
Neither analyst owns Microsoft shares, and their firms don't do banking business with the company.
There are more than 100 income-oriented equity mutual funds, encompassing $142 billion in assets under management -- about 6% of the total in equity funds, said Lipper Inc. analyst Don Cassidy. Some pension funds also have dividend requirements, and some managers of individual trust accounts buy only dividend-paying stocks.
Even without formal requirements, "some institutional 'value' managers focus on dividend paying as part of their philosophy," said Vice President Will Wechsler of Greenwich Associates, a financial services research and consulting firm.
Microsoft spokeswoman Caroline Boren acknowledged Thursday that increasing the field of investors "was most certainly part of the thinking behind the decision."
The dividend issue received its first broad airing a year ago, when Nader's Consumer Project on Technology wrote to Microsoft and pointed out that a rarely invoked U.S. law allows for a 39% tax on retained company profit "beyond the reasonable needs of the business."
Project Director James Love met last summer with the Internal Revenue Service to press the argument, though Love acknowledged Thursday, "I don't think you can say that the IRS was ready to crack the whip."
In the ensuing months, though, accounting scandals soured more investors on growth stocks. More institutions began viewing dividends in a positive light, even for technology companies that traditionally avoid them in favor of research, acquisitions and stock buybacks.
"Dividends are not just some old 'fuddy-duddy' approach to investing," Salomon Smith Barney strategist Tobias Levkovich wrote in December.
A week before its January board meeting, Microsoft gave its directors papers presenting the status of other individual factors. Capital-spending requirements were low enough. The amount needed for buybacks would stay low as fewer Microsoft employees had in-the-money stock options.
The most significant new issue, Boren said, was the just- announced news that the lawyers representing California consumers had agreed to settle their class-action antitrust claim for $1.1 billion in vouchers for software and hardware.
"The resolution of a significant portion of the U.S. and state antitrust matters reduced some of the uncertainty," Boren said.
In the end, it wasn't so much that any one thing finally convinced Microsoft, said CIBC analyst Brad Reback: The company simply ran out of reasons not to.
Microsoft shares on Thursday rose $1.28 to $52.28 on Nasdaq but have fallen 5.5% since the dividend announcement, reflecting toned-down growth forecasts by the company.
Microsoft's dividend will cost it $850 million a year, far less than what it earns just on the interest from its investments; it will yield 0.3% of the stock price.
Nader's group says it plans to write a pro-dividend letter to Cisco Systems Inc.