Microsoft Initiates Massive $40 Billion Share Buyback Program

Shortly before market opening, Microsoft (NASDAQ:MSFT) announced a new massive buyback program as well as a dividend increase. The new buyback program comes after the expiration of a previous $40 billion program that is set to expire on September 2013. In other words, today’s news is a confirmation of Microsoft’s commitment to invest its cash in its own stock.

Quarterly dividend will go up from $0.23 to $0.28 as well, representing a significant 22 percent increase. Microsoft is still generating billions in profits every quarter, and investors expect the company to return cash to its shareholders.

The share buyback program could boost Microsoft shares as many investors were waiting for an announcement along these lines. Contrarily to the previous program, there is no expiration date. In pre-market trading, the stock is up 1.83 percent to $33.40. The fact that there is no expiration date may indicate that the buyback initiative could take a while.

When it comes to share buyback programs, it is a great vote of confidence for a company’s stock. On the one hand, it means that Microsoft doesn’t think that it could invest its cash on hand any other way. Microsoft shares are the best financial investment for Microsoft’s own money. On the other hand, it reduces the number of shares available on the stock market and therefore artificially boosts the value of the remaining shares. Existing investors will own a bigger chunk of Microsoft.

As a reminder, Apple was one of the only big tech companies that didn’t issue dividends or have a share buyback program. It all changed last year when the company announced that it would launch a $45 billion share buyback program. Back in April, the company more than doubled this program to $100 billion.

Yahoo has its own $5 billion buyback program. All those programs are the reason why Microsoft’s buyback program was necessary. It allows the company to remain competitive on a financial level.

(Image credit: Robert Scoble)