The company also noted that it hit its fiscal 2003 second quarter targets, with diluted earnings per share of 47 cents and revenue of $8.54 billion for the quarter, which ended Dec. 31.
Analysts had been looking for earnings per share of 47 cents.
The dividend, accompanied by the announcement of a two-for-one stock split, will amount to 16 cents per share -- 8 cents per share after the split.
"Declaring a dividend demonstrates the board's confidence in the company's long-term growth opportunities and financial strength," said John Connors, Microsoft's chief financial officer. "We are especially pleased to be able to return profits to our shareholders, while maintaining our significant research and development efforts and satisfying our long-term capital requirements."
He added, "This is a significant step for Microsoft and we're pleased to be able to make this step while continuing to make very broad and deep investments in research, sales and marketing."
Offering further details, he said, "You could probably characterize this dividend as a starter dividend."
"In looking at the dividend we looked at Dow 30 companies, we looked at other tech companies and we feel that what will be over $850 million for our first dividend is a significant amount of money and a meaningful dividend," he said. "As we go forward, we'll look at what our legal environment and risk profile will look like. What does R&D look like. What do significant other uses of cash look like. And then we'll review the dividend ballpark. It's a good place to start."
However, he also told analysts that the dividend will not affect the company's stance on stock buy-back.
"We'll continue to be a large purchaser of our stock," he said. "In addition, we do have the goal of managing dilution and will use the buy-back for that."
The dividend may help bolster investor confidence in the company, despite Connors' forecast that global IT spending will remain stagnant for the short term.
"The company delivered solid results in every business despite a challenging global economic environment," Connors said. He added, "While we are very optimistic about the future of the technology sector, we do not expect to see a significant upturn in global IT spending in the short term."
Many investors were hoping that Microsoft would give a sign that IT spending had turned a corner. While Intel solidly beat its guidance Tuesday, analysts punished Intel's stock on Wednesday due to its forecast that capital spending will be sharply lower than in 2002, a sign that it may not expect a big increase in demand.
Microsoft's and Intel's fortunes are closely tied to each other and the PC business as a whole.
But Microsoft was able to give investors little hope for the short-term, lowering its guidance for third quarter sales to between $7.7 billion and $7.8 billion. Analysts had been looking for sales of $8 billion. However, the earnings side stayed in-line, with the company providing third quarter guidance of 47 cents or 48 cents a share. Prior to the guidance, analysts were looking for 47 cents a share.
For the full fiscal year, Microsoft is forecasting revenues in the range of $31.9 billion to $32.1 billion, off consensus estimates of $32.5 billion. The company also proffered a lower earnings guideline of between $1.90 and $1.93 per diluted share from the $1.98 analysts were expecting.