Microsoft plans another US$40b buyback, boosts dividend

[SEATTLE] Microsoft Corp's board authorised the buyback of an additional USUS$40 billion of stock on top of an existing US$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 per cent to 39 US cents a share, according to a statement Tuesday.

The company's stock has jumped 31 per cent in the past year, giving Microsoft a market capitalisation of US$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 per cent this fiscal year after a decline of 2 per cent the previous year - amid continued restructuring efforts related to the failed acquisition of Nokia Oyj's phone business.

Since Mr Nadella took the helm in 2014, the company's cloud and internet- based Office software businesses have fuelled 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, Mr Parakh said.

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

The company had US$113.2 billion in cash and short-term investments as of June 30. Microsoft is spending about US$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 per cent increase the previous year. Prior to today's announced change, Microsoft's 2.53 per cent 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 US$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 US taxes if brought back to use for dividends and buybacks.

BLOOMBERG