Microsoft Announces $40 Billion Stock Buyback

Microsoft on Tuesday announced that it would repurchase up to $40 billion of the company's shares, replacing a previous share-repurchase program that was set to expire this month. Additionally, the firm announced a quarterly per-share dividend of $0.28—a 22 percent increase over the previous quarter's dividend, which will be paid to shareholders at the end of the calendar year.

"These actions reflect a continued commitment to returning cash to our shareholders," Microsoft Chief Financial Officer Amy Hood said in a prepared statement.

That's actually a fair statement: The previous share-repurchase program was set to end on September 30, 2013, but the new program has no expiration date. The move signals confidence in the long-term prospects for the stock which, obviously, hasn't moved much in years. But by reducing the amount of shareholder-owned stock, Microsoft can make shareholders' existing shares more valuable.

The 22 percent increase in the quarterly dividend is also notable. Microsoft will pay the 3.4 percent dividend (up from 2.8 percent) to shareholders of record as of November 21, 2013; the payment date is December 12. It's unclear whether the dividend hike should be construed as a warning about profits or revenues in the current quarter, or if it's related to a recent agreement between Microsoft and the activist investors at ValueAct.

As you must know, Microsoft is in the middle of a major revamping of its business, evolving from a maker of traditional software products into what it calls a "devices and services" company. It has launched a major internal reorganization, and CEO Steve Ballmer recently announced his intention to retire within 12 months. The firm also recently announced that it would grant ValueAct President Mason Morfit a seat on Microsoft's board of directors.

Microsoft this month also announced its plans to purchase Nokia's handset and services businesses for $7.2 billion. Nokia's former CEO, Stephen Elop, will return to Microsoft as part of the deal and is in the running to succeed Mr. Ballmer as CEO of Microsoft.