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SEATTLE (Reuters) - Microsoft Corp., the world's No. 1 software maker, said on Tuesday it plans to return more than $75 billion in cash to shareholders over the next four years in the largest corporate payout ever.
Shares rose 5 percent in after-hours trade following Microsoft's announcement that it planned to buy its own stock, double its dividend and issue a special one-time dividend.
Microsoft, which generates about $1 billion in cash per month, said it would still have sufficient funding to make capital investments and acquisitions.
Microsoft has been under mounting pressure from investors to return cash to shareholders as its sales growth has slowed, its share price has stalled and it has successfully settled major legal disputes with governments and competitors.
"I think they are being good stewards of capital returning the money if they do not have a better way to invest the money themselves," said Nancy Barber, a fund manager at U.S. Bancorp Asset Management, which owns Microsoft stock. "In this market, a $30-billion dividend - who won't take it? I think people are pleased but it is largely anticipated."
By pledging to return $75 billion in cash over the next four years, the Redmond, Washington-based company effectively will return all of its existing cash position, expected to top $60 billion in the just-ended quarter.
Analysts say they believe Microsoft has more than $70 billion in immediately available funds, including investments in other companies and other assets.
In addition, as Microsoft increasingly draws on a steady stream of revenue from software sales booked far in advance, the company has been generating free cash flow of about $12 billion per year.
Analysts say that these are all signs of a company entering a more mature stage with slower growth rates. But Chief Executive Steve Ballmer, who issued a note three weeks ago calling for greater cost control, disagreed.
"I think of us as very much in a phase of great opportunity and growth," Ballmer told reporters and analysts.
Microsoft's board of directors approved a quarterly dividend of 8 cents per share, effectively doubling the current 16 cents per share annual dividend. Microsoft will also buy up to $30 billion of its own stock over the next four years.
The board also approved a one-time special dividend of $3 per share, subject to shareholder approval at the annual meeting in November.
"The magnitude of this (cash) distribution is unique because we're still going to have substantial funds available for investment and growth," said Curt Anderson, head of Investor Relations at Microsoft.
Microsoft had kept a tight grip on its cash, citing ongoing litigation. But the company has resolved many lawsuits over the past year and investors began clamoring for Microsoft to return more cash to shareholders.
One analyst said the company could have given even more cash back to shareholders, especially earlier in the four-year period.
"I think they could have gone a little further to get themselves more in line with the market yield," said Charles Di Bona, an analyst at Sanford C. Bernstein & Co. "I would have preferred to see more of (the stock buyback) upfront rather than over four years."
Shares in Microsoft, which have underperformed other technology stocks over the past year, rose to $29.14 in after-hours trade from the Nasdaq closing price of $28.32.
Shares rose 5 percent in after-hours trade following Microsoft's announcement that it planned to buy its own stock, double its dividend and issue a special one-time dividend.
Microsoft, which generates about $1 billion in cash per month, said it would still have sufficient funding to make capital investments and acquisitions.
Microsoft has been under mounting pressure from investors to return cash to shareholders as its sales growth has slowed, its share price has stalled and it has successfully settled major legal disputes with governments and competitors.
"I think they are being good stewards of capital returning the money if they do not have a better way to invest the money themselves," said Nancy Barber, a fund manager at U.S. Bancorp Asset Management, which owns Microsoft stock. "In this market, a $30-billion dividend - who won't take it? I think people are pleased but it is largely anticipated."
By pledging to return $75 billion in cash over the next four years, the Redmond, Washington-based company effectively will return all of its existing cash position, expected to top $60 billion in the just-ended quarter.
Analysts say they believe Microsoft has more than $70 billion in immediately available funds, including investments in other companies and other assets.
In addition, as Microsoft increasingly draws on a steady stream of revenue from software sales booked far in advance, the company has been generating free cash flow of about $12 billion per year.
Analysts say that these are all signs of a company entering a more mature stage with slower growth rates. But Chief Executive Steve Ballmer, who issued a note three weeks ago calling for greater cost control, disagreed.
"I think of us as very much in a phase of great opportunity and growth," Ballmer told reporters and analysts.
Microsoft's board of directors approved a quarterly dividend of 8 cents per share, effectively doubling the current 16 cents per share annual dividend. Microsoft will also buy up to $30 billion of its own stock over the next four years.
The board also approved a one-time special dividend of $3 per share, subject to shareholder approval at the annual meeting in November.
"The magnitude of this (cash) distribution is unique because we're still going to have substantial funds available for investment and growth," said Curt Anderson, head of Investor Relations at Microsoft.
Microsoft had kept a tight grip on its cash, citing ongoing litigation. But the company has resolved many lawsuits over the past year and investors began clamoring for Microsoft to return more cash to shareholders.
One analyst said the company could have given even more cash back to shareholders, especially earlier in the four-year period.
"I think they could have gone a little further to get themselves more in line with the market yield," said Charles Di Bona, an analyst at Sanford C. Bernstein & Co. "I would have preferred to see more of (the stock buyback) upfront rather than over four years."
Shares in Microsoft, which have underperformed other technology stocks over the past year, rose to $29.14 in after-hours trade from the Nasdaq closing price of $28.32.
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