Microsoft plans $40-bn buyback, boosts dividend

Microsoft Corp, the world's largest software maker, announced a new $40-billion stock buyback plan and increased its dividend 22 per cent, seeking to reward shareholders at a tumultuous time for the company.

The repurchase programme, which has no expiration date, replaces another $40-billion buyback plan that was due to lapse at the end of this month, Microsoft said on Tuesday in a statement. The company's quarterly dividend will rise to 28 cents a share, payable on December 12 to shareholders of record as of November 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.
 

SOFT CORNER  FOR INVESTORS

• The repurchase programme, which has no expiry date, replaces another $40 bn buyback plan that was due to lapse at the end of this month
• The company’s quarterly dividend will rise to 28 cents a share
• The size of the buyback eclipses most repurchase programmes, though it’s smaller than the $50 billion plan announced by Apple Inc in April
• Microsoft said in July its online-services business, largely advertising revenue from Bing search engine and other online properties, posted an operating loss of $1.28 bn in the fiscal year ended June 30. On Tuesday, Microsoft unveiled a redesigned Bing website, aiming to gain ground on Google Inc, the leading search engine

"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."

Shares of Redmond, Washington-based Microsoft rose 1.5 per cent to $33.29 at 9:41 am in New York. The stock had added 23 per cent this year through Monday.

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 Tuesday'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 in April. That company is authorised 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 on Tuesday Microsoft unveiled a redesigned Bing website, aiming to gain ground on Google Inc, the leading search engine.