* First Microsoft dividend raise in two years
* Follows Cisco decision to start dividend
* Board OKs additional $6 bln in debt
* Microsoft has $37 bln of cash on balance sheet (Adds background on Microsoft, peers' dividends)
By Bill Rigby
SEATTLE, Sept 21 Microsoft Corp (MSFT.O) raised its quarterly dividend by 23 percent to 16 cents per share on Tuesday, its first increase in two years, marking the latest move by a technology company to return cash to shareholders frustrated by stagnant share prices.
The world's largest software company, whose stock is trading at the same level it was eight years ago, has been under pressure to distribute more of the $37 billion of cash on its balance sheet.
Other cash-rich tech companies have felt similar pressure to reward shareholders. Oracle Corp ORCL.O started paying dividends last year and Cisco Systems Inc (CSCO.O) said last week it would start paying dividends this fiscal year.
The Chief Executive of Xerox Corp (XRX.N) said in an interview on cable channel CNBC on Tuesday that the company would look at raising its dividend next year.
A regular dividend is generally regarded as a mark of a mature company that cannot match earlier growth rates or stock gains and tends to attract more conservative investors. It is the antithesis of what many tech companies aspire to in their early years.
Several of Microsoft's peers have paid dividends for many years, but Intel Corp (INTC.O) and International Business Machines Corp (IBM.N) have increased payouts dramatically over the past 10 years. Hewlett-Packard Co (HPQ.N) has held its dividend unchanged since 1998.
The holdouts are Apple Inc (AAPL.O), which used to pay dividends but stopped in 1995, and Google Inc (GOOG.O), which has never paid a dividend and says it does not plan to.
A quarterly dividend of 16 cents per share gives Microsoft a dividend yield of about 2.5 percent. That puts it 12th in the Nasdaq 100 by dividend yield and 138th in the Standard & Poor's 500, according to Reuters data.
Its shares were up 2 cents in after-hours trading after closing at $25.15 on Nasdaq. They are down 17 percent this year, compared with a 3.5 percent gain in the Nasdaq.
Microsoft, which went public in 1986, started paying an annual dividend in 2003. The following year it issued a special dividend of $3 per share -- shelling out more than $30 billion in one go -- and started a quarterly dividend of 8 cents per share. It raised the quarterly dividend regularly until its last increase to 13 cents per share in September 2008.
The Redmond, Washington-based company also said its board of directors authorized it to issue up to $6 billion in additional debt, which could be used for paying dividends or buying back stock.
Two years ago the board authorized $6 billion in debt, which the company used by selling $3.75 billion in long-term corporate bonds, $1.25 billion in convertible bonds and $1 billion in short-term commercial borrowings.
Most of Microsoft's abundant cash is overseas, which makes it cost-effective for the company to take on debt rather than pay taxes on repatriated cash.
The dividend is payable Dec. 9 to shareholders of record on Nov. 18. (Reporting by Bill Rigby; editing by Gary Hill and Andre Grenon)
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