Microsoft plans $40 billion stock buyback, boosts dividend

Microsoft Corp. (NASDAQ:MSFT), the world’s largest software maker, announced a new $40 billion stock buyback plan and increased its dividend 22%, seeking to reward shareholders at a tumultuous time for the company.

The repurchase program, which has no expiration date, replaces another $40 billion buyback plan that was due to lapse at the end of this month, Microsoft said today in a statement. The company’s quarterly dividend will rise to 28 cents a share, payable on Dec. 12 to shareholders of record as of Nov. 21.

The move is a step in the right direction for investors, though the open-ended schedule for the new buyback plan raises questions, said Matthew Hedberg, an analyst with RBC Capital Markets in Minneapolis. The company has come under pressure from activist investor ValueAct Holdings LP, which pushed Microsoft to return more money to shareholders, according to a person with knowledge of the matter.

“What would be more interesting is if they put more parameters on the timing of the buyback -- sooner is better than later,” said Hedberg, who has a neutral rating on Microsoft. “The dividend is more material because it’s incremental to their existing dividend.”

Microsoft shares rose 1.5% to $33.29 at 9:41 a.m. in New York. The stock had added 23% this year through yesterday.

Tops Estimates

The new 28-cent dividend tops the 26 cents estimated by analysts, according to data compiled by Bloomberg.

“These actions reflect a continued commitment to returning cash to our shareholders,” Chief Financial Officer Amy Hood said in today’s statement.

After struggling to keep up with rivals in the smartphone and tablet markets, Microsoft is retooling its strategy and seeking a new chief executive officer. Steve Ballmer, who has run the company since 2000, announced plans last month to retire when a replacement is found. The company also agreed to buy Nokia Oyj’s phone business for $7.2 billion, aiming to bolster its position in mobile devices.

Microsoft signed a pact last month to cooperate with ValueAct, saying it would hold regular meetings with the firm’s president, Mason Morfit. Under the agreement, ValueAct also has the option of having Morfit become a director beginning at the first quarterly board meeting of 2014.

Apple’s Payout

The size of the buyback eclipses most repurchase programs, though it’s smaller than the $50 billion plan announced by Apple Inc. (NASDAQ:AAPL) in April. That company is authorized to repurchase a total of $60 billion in stock. Including dividends, Cupertino, California-based Apple expects to dole out $100 billion in shareholder rewards by 2015.

Microsoft is grappling with a shift from the personal- computer market -- where its Windows and Office software is dominant -- to mobile and Web-based applications. While Microsoft’s traditional products remain profitable, its expansion into new areas hasn’t gained as much traction.

The company said in July that its online-services business, largely advertising revenue from Bing search engine and other online properties, posted an operating loss of $1.28 billion in the fiscal year ended June 30.

Earlier today Microsoft unveiled a redesigned Bing website, aiming to gain ground on Google Inc., the leading search engine.

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