Microsoft surprised investors after the close on Tuesday with a $3 a share one-time dividend and a $30 billion stock buyback plan.
The software giant also doubled its annual dividend to 32 cents a share.
The company said the moves could cost as much as $75 billion over the next four years. Microsoft had $56.4 billion in cash at the end of the March quarter, and has grown that cash pile by $7-10 billion a year in recent years.
The moves come as Microsoft’s long-running antitrust troubles are winding down. Buying back stock will increase shareholder value by reducing the number of outstanding shares, making for more earnings per share. Microsoft already buys back stock to cover employee grants and options, but the new amount is above that.
Microsoft’s stock will likely fall $3 after the one-time dividend is paid out, and the company will also have lower interest income with less cash.
For Microsoft Chairman Bill Gates, who owns 1.1 billion shares, the dividends will also make for some nice tax-free income.
Another issue likely to arise is whether spending all that cash will reduce the likelihood of a large acquisition by Microsoft, although the company could still make an acquisition with stock in addition to cash, and the company continues to generate impressive free cash flow.
Shares of Microsoft gained 5% after hours on the news. Microsoft will report earnings Thursday after the close.
Also after the close on Tuesday, Sun missed estimates by a penny with a nickel loss, but revenues came in well ahead of estimates. Motorola
beat estimates and reaffirmed guidance. Texas Instruments
met estimates. Seagate
, Sanmina
, E*Trade
, WebEx
, Microchip
and Plantronics
beat estimates. StorageTek
and Cymer
missed.
Stocks posted gains during the day on soothing comments from Fed Chairman Alan Greenspan and strong earnings from Corning and EMC
.
The Nasdaq surged 33 to 1917, the S&P 500 rose 7 to 1108, and the Dow gained 55 to 10,149. Volume rose to 1.45 billion shares on the NYSE, but declined to 1.68 billion on the Nasdaq. Advancers led 19-13 on the NYSE, and 21-9 on the Nasdaq. Upside volume was 69% on the NYSE, and 85% on the Nasdaq. New highs-new lows were 112-36 on the NYSE, and 33-129 on the Nasdaq.
Corning , EMC
, J2 Global
, Ameritrade
, JDA
and CDW
gained on better than expected results.
Flextronics , Zhone
and DSP
fell on disappointing earnings reports.
Schwab gained 6% on news that Charles Schwab will reassume the CEO role.
Sonus Networks jumped 18% on hopes that its earnings issues will be resolved soon.
Novatel and Lucent
gained on a deal with AT&T Wireless
.
