Microsoft Board Approves $40 Billion Buyback And Hikes Dividend By 22 Percent
Tech giant Microsoft (NASDAQ: MSFT) announced today that its board approved a $40 billion buyback as well as a 22 percent dividend increase ahead of a scheduled meetings with analysts later this week. The quarterly dividend was increased to $0.28 per share, which is a five cent increase over the previous quarter. The stock is up 0.63 percent at the time of this writing and has seen gains of as much as 2 percent today. The stock buyback is set to replace the previous buyback program which is due to expire at the end of September. There is no expiration date on the new buyback program and it is unlikely to impress anyone as the previous program was also valued at $40 billion. Analysts will probably push for a bigger buyback at Thursday’s meeting.
These moves come at a time when Microsoft is undergoing changes, and they are by no means small. The company announced in July that it is initiating a major reorganization which will shift the company’s emphasis to tablets and smartphones. Then in August, MSFT announced its long time CEO Steve Ballmer would be leaving the company at some point during the next year. Finally, in what is probably the biggest change, the company stunned investors and analysts when it announced it was purchasing Nokia’s (NYSE: NOK) mobile business for a hefty $7 billion.
The company is far from cash poor. As of the end of June it held about $77 billion in cash and short-term investments. Cash flow from operations totaled nearly $6 billion. The dividend hike will cost the company about $400 million a quarter. That leaves plenty of cash around to throw at marketing new phones, the new Xbox One, and Windows 8.1.
As for the Nokia acquisition, it may seem to be akin to Google’s (NASDAQ: GOOG) purchase of Motorola Mobility, but the details are very different. Microsoft did not acquire the company, just the mobile portion. Nokia will retain its rich patent portfolio, leasing the patents to MSFT for a term of 10 years with Microsoft having the option to extend. As well as Nokia’s top management team, Microsoft will inherit approximately 32,000 new employees. What may be most significant is that possible Ballmer replacement Stephen Elop is in the group. So Microsoft has not only acquired a handset business, but probably its next CEO in Elop.
$7 billion is pretty pricey for new leadership. Hopefully Microsoft has a definitive plan for turning Nokia into a lucrative venture. With all of its recent efforts at reorganization and change, Microsoft has acknowledged that it is in a position where it needs a solid home run with the bases loaded. The company knows it needs to re-establish its Street cred with investors and analysts alike. That is what the new CEO will be expected to do. Whoever takes the helm will have his/her work cut out for them. It will be interesting to watch how the initial moves play out.
If you haven’t already done so… take a look back at Steve Ballmer’s top 11 craziest moments.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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