Microsoft to Buy Back Up to $40 Billion in Stock; Software giant also intends to increase its dividend by 11% Chin, Kimberly. Wall Street Journal (Online); New York, N.Y. [New York, N.Y]18 Sep 2019. PDFCite 1. Microsoft Corp. said it plans to buy back as much as $40 billion in stock and raise its dividend by 11%, maintaining its record of sharing its flood of cash with shareholders. This is the third time the software giant has authorized a buyback plan of that size. The board previously authorized such repurchases in 2013 and again in 2016. Microsoft said there is no expiration date for the latest share-repurchase program. The company also said it could cut the program short. Microsoft, now the largest publicly traded company, has posted strong earnings growth from a bet on cloud-computing that helped it beat Wall Street estimates in the fiscal fourth quarter, which ended June 30. Sales rose 12% and profit soared 49% from a year earlier. The Redmond, Wash., company made the repurchase announcement Wednesday as it was on pace to reach the end of its 2016 share-buyback program within a few months. The company had $11.4 billion of that program remaining as of June 30, according to filings. Microsoft bought about $4.6 billion of its own stock in the April-through-June quarter. The buyback represents about 3.8% of Microsoft’s more than $1 trillion market value. From the fiscal years between 2017 and 2019, the company repurchased a combined 419 million shares for roughly $35.7 billion, the company said. Shares rose 1.2% to $138.67 in after-hours trading. The company’s shares have risen 36% year to date. Microsoft also raised its quarterly dividend by 5 cents to 51 cents a share, or 11% above the prior quarter’s payout and a slightly higher dividend increase than the company announced a year ago. The dividend will be payable on Dec. 12 to shareholders of record on Nov. 21. Microsoft’s cash from operations was $52.2 billion for the fiscal year ended June 30. The company in July said its growth momentum was continuing. Chief Financial Officer Amy Hood told analysts that the current fiscal year should again include a double-digit sales gain in the cloud-computing business, where Microsoft is the No. 2 competitors behind Amazon.com Inc. Credit: By Kimberly Chin Word count: 345 Copyright 2019 Dow Jones & Company, Inc. All Rights Reserved. This article provides an opportunity to discuss capital allocation, Modigliani and Miller’s propositions 1 and 2, the market signaling associated with dividends and buybacks, as well as debate recent calls from legislators to curtail share repurchases. In your posting, you are expected to address (but not limited to) the following questions: 1. One could argue that the significant return of capital was a signal that management does not have positive NPV projects in which to invest. However, the shares rose 1.2% on the announcement. Why do you think this is the case? 2. Why would Microsoft undertake both a share repurchase and increase its dividend? Why not just one or the other?
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