Microsoft Corporation (MSFT) announced after Tuesday’s market close that by the end of 2016 it plans to buy back $40 billion worth of shares from the secondary market.
The company also raised its dividend payout by 8.3%.
Although Microsoft hasn’t announced an exact date for these developments, the stock repurchase program represents nearly 9% of Microsoft’s total market capitalization of $442.7 billion.
Microsoft shares surged ahead over 1.5% on the news Wednesday, and are ahead in early morning trading today.
We note that Microsoft has been one of the most active companies in the market in terms of share buybacks. Reportedly, the company has spent about $140 billion over the years on its stock repurchase programs.
In 2013, Microsoft had initiated a similar stock repurchase program, which was also worth the same amount as the current buyback target. The new program will definitely boost earnings growth in fiscal 2017.
Microsoft’s Increased Dividend Payouts
Historically, Microsoft has announced dividend increases during the month of September. We note that the 8.3% dividend increase is relatively less when compared to the past increases.
However, at 39 cents per quarter (previously 36 cents), Microsoft’s dividend yield is 2.7% currently compared with 2.3% earlier.
Our Take on Microsoft: A Long-Term Play for Investors
Although Microsoft’s operating systems business has taken a hit due to the slowdown in PC sales worldwide, the company’s other software products and services have been able to generate steady cash flow for the company.
As of Jun 2016, the company reported $113 billion as cash and investments in its books. Moreover, with Satya Nadella at the helm, Microsoft is focusing on cloud services, which bodes well for the company in the long run.
Zacks Rank & Key Picks
At present, Microsoft carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader technology space are Avid Technology, Inc. (AVID) and Infoblox Inc (BLOX), each sporting a Zacks Rank #1 (Strong Buy) and Aspen Technology, Inc. (AZPN), carrying a Zacks Rank #2 (Buy).
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