Microsoft Plans Another $40 Billion Buyback, Boosts Dividend

By Pino Vallejo

Microsoft Corp.’s board authorized the buyback of an additional $40 billion of stock on top of an existing $40 billion repurchase program it will finish by year’s end, keeping up a strategy of returning money to shareholders as its cash pile grows.

The Redmond, Washington-based software maker also raised its quarterly dividend by 8.3 percent to 39 cents a share, according to a statement Tuesday. The company’s stock has jumped 31 percent in the past year, giving Microsoft a market capitalization of $442.7 billion — the third-largest in the Standard & Poor’s 500 Index.

Chief Executive Officer Satya Nadella has been working to jump-start revenue growth — which analysts project will be 2 percent this fiscal year after a decline of 2 percent the previous year — amid continued restructuring efforts related to the failed acquisition of Nokia Oyj’s phone business. Since Nadella took the helm in 2014, the company’s cloud and internet-based Office software businesses have fueled growth and boosted investor optimism. The stock this year has been hovering close to a 1999 record high.

“This reflects a continuation of the company’s pledge of returning value to shareholders via dividends and buybacks," said Sid Parakh, a fund manager at Becker Capital Management, which owns Microsoft stock. “This implies continued confidence in current and future business trends.”

Given Microsoft’s “debatable history with acquisitions,” this kind of capital-return program signals to investors that the company is being disciplined in how it spends money, Parakh said.

Microsoft shares rose about 1 percent in extended trading after the announcement. They slipped less than 1 percent to $56.81 at the close in New York.

Cash Hoard

The company had $113.2 billion in cash and short-term investments as of June 30. Microsoft is spending about $26 billion to acquire LinkedIn Corp., a deal that will be largely funded by debt sales.

On a percentage basis, Microsoft’s dividend increase this year was smaller than the 16 percent increase the previous year. Prior to today’s announced change, Microsoft’s 2.53 percent dividend yield ranked No. 19 of the 30 members of the Dow Jones Industrial Average, according to data compiled by Bloomberg. Tech companies in the index that offer a larger dividend yield include Intel Corp., Verizon Communications Inc., International Business Machines Corp. and Cisco Systems Inc.

The new buyback program succeeds one of the same size that was implemented in 2013, which itself replaced yet another $40 billion buyback. The company has been using some of its capital for shareholder returns for the past decade in a program that began when its share price was ailing and investors were clamoring for a return of some of its growing cash pile. While cash on the balance sheet has remained impressive, the company faces the challenge of having the vast majority of it domiciled overseas and subject to U.S. taxes if brought back to use for dividends and buybacks.