Microsoft Plans $40 Billion Stock Buyback and Raises Dividend

[mahatmakanejeeves]

Source: The Wall Street Journal.

Microsoft Plans $40 Billion Stock Buyback and Raises Dividend

Tech giant’s quarterly payout to 36 cents from 31 cents represents an increased dividend yield to 2.7%

By Josh Beckerman
[e-mail]

Updated Sept. 20, 2016 5:24 p.m. ET

Microsoft Corp. announced plans to buy back up to $40 billion in stock and boost its dividend to 39 cents from 36 cents.

The tech giant said it is on track to complete by year’s end the current $40 billion repurchase program, which it established in September 2013. The company’s new $40 billion repurchase plan represents about 9% of Microsoft’s current market value of $442.7 billion.

Microsoft tends to announce dividend increases in September. The 8% increase announced Tuesday is a smaller rate of increase than those of recent years. Last year, the company raised its quarterly payout by 16% to 36 cents from 31 cents, after an 11% increase in 2014.

Read more: http://www.wsj.com/articles/microsoft-plans-40-billion-stock-buyback-and-raises-dividend-1474404013

[Texano78704]

1. In the old days

... they'd call that price fixing.

[metalbot]

2. How in the world is that price fixing?

I'm totally confused. It's the equivalent to 3 friends who own a business, and two of them buying out the other. They then each make more money...

[Igel]

3. It feels right to say that.

Therefore it is perhaps not the truth, but a truth.

The old days I remember would have called it "buying back shares and raising the dividend."

Oddly, the words and sounds and meaning seem oddly similar to today's weird and exotic parlance. The world just keeps more and more deviouser.

[Dreamer Tatum]

4. It's not even sort of a truth.

It's their stock; they can buy it back if they want. For the millions of other shareholders, dividends are increasing. It's a good thing.

[Texano78704]

8. Perhaps not literal

A buyback reduces the number of shares in a company held by the public. Because every share of stock is a partial share of a company, the portion of that company that each remaining shareholder owns increases.

http://www.fool.com/knowledge-center/does-a-stock-buyback-affect-the-price.aspx

And then there's this:

“Stock buybacks create a sugar high for the corporations. It boosts prices in the short run, but the real way to boost the value of a corporation is to invest in the future, and they are not doing that,” (Senator Elizabeth) Warren said.

https://www.bostonglobe.com/news/nation/2015/06/04/sen-elizabeth-warren-decries-stock-buybacks-and-high-ceo-pay-seeks-overturn-rules/iXvsq8lGI6KOFsFY5w7FUP/story.html

[Thunderbeast]

5. A company has $40 Billion and no new ideas

Stock buy-backs are a way to use cash flow to increase the value of shares owned by investors. It provides a short-term bump for shareholders, but it also signals the market that the company has run out of innovative ideas for new and enhanced products and services. Tech companies have traditionally not paid dividends, and not engaged in buybacks. Investors used to expect these companies to use their cash to create and innovate. Sad that this once-great company has devolved to a "harvest strategy" rather than use their talents and cash flow to bring the next breakthrough technology to market. Changing their software pricing model from a purchase model to a subscription service is another indicator that Microsoft is becoming a utility that understands how their customers have become so dependent on Windows, Office, and other products, that the cost to change has become too high. Time to milk the customer base.

[melm00se]

6. comments

Tech companies have traditionally not paid dividends, and not engaged in buybacks

That is true as tech companies, in actuality new companies, rely on stock price appreciation going hand in hand with revenue growth as the way of attracting investors. As companies reach a certain level of maturity revenue growth slows and other methods have to be used to attract new investors and that is via dividends.

Changing their software pricing model from a purchase model to a subscription service is another indicator that Microsoft is becoming a utility that understands how their customers have become so dependent on Windows, Office, and other products, that the cost to change has become too high. Time to milk the customer base.

The shift from purchase (capex) to subscription (opex) model has been driven upon companies by larger organizations/customers rather than the other way around. Customers are realizing that there are a boatload of features embedded in products/software that they, frankly, never (or rarely) use so these customers are asking (demanding?) that these vendors shift their sales models from "buy everything and use a fraction" to "subscribe for only what you need, when you need it". From a business planning perspective, this shift makes a ton of sense and from a balance sheet perspective, you aren't forced to carry any long term debt/unnecessary capitalization on your books.

[Yavin4]

7. Hard to innovate when the top brass are some of the richest people on the planet

Waking up on silk sheets in a huge on your own tropical island tends to take away your hunger and drive to do new things.