The world's largest software company said it will start paying shareholders 23 cents per share each quarter from December, up from 20 cents. That is the seventh increase since it started paying a regular quarterly dividend in 2004, but is smaller than the 25 percent and 23 percent increases the two previous years.

Microsoft's yield, which shows annual dividend payments as a percentage of share price, is now about 2.9 percent, near the high end of the technology sector. Its shares dipped 0.3 percent in after-hours trading.

Microsoft, whose share price has been static for the last decade, was one of the first big tech companies to introduce a dividend, starting with an annual payout in 2003, then a special dividend and regular quarterly payments the year after.

Its new dividend yield of 2.9 percent, based on its closing share price of $31.17, compares with about 3.9 percent for Intel Corp and 1.6 percent for IBM Corp, which are both long-time dividend payers.

Cisco Systems Inc, which paid out its first quarterly dividend last year, also stands around 2.9 percent. Apple Inc, which restarted dividends after a 12-year hiatus only this year, is about 1.5 percent. Google Inc does not pay dividends.

The reduction in growth rate comes after a difficult financial year for Microsoft, which saw operating income fall 20 percent, chiefly due to a $6.2 billion write-off for a failed acquisition.

Microsoft's Chief Financial Officer, Peter Klein, said earlier this year that the company's dividend tends to stay in step with growth in operating income, while taking into account cash on hand. Microsoft, like Apple, has a huge cash hoard, up 19 percent last financial year to $63 billion, $54 billion of which is held overseas.

Microsoft also said on Tuesday that long-time director Raymond Gilmartin, former chief executive of drug company Merck & Co, will retire from the board and not seek re-election at this year's annual meeting. Gilmartin, 71, joined the Microsoft board in 2001.

(Reporting by Bill Rigby.; Editing by Matthew Lewis and Andre Grenon)

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