Inside Microsoft’s New $40 Billion Stock Repurchase Program

Microsoft has announced a new $40 billion share repurchase authorization with no expiration date. With the move, Microsoft in effect granted itself $40 billion in latitude to buy its own shares whenever it wants to. The announcement came with a dividend increase of 22 percent to $0.28 per share.

Its stock has responded by doing very little, rising just 0.39 percent in regular trading. It trails the NASDAQ’s rise of 0.76 percent during today’s normal hours. It almost feels odd that investors would less than shrug at the company’s news.

The $40 billion program was not a surprise. Microsoft yet-current $40 billion program (not the one announced today) will wrap on September 30. So Microsoft had to either announce a new program or stop repurchasing its shares, which it would not do. The company’s massive cash accumulation is implicit pressure to return wealth to investors. And share repurchases are an important instrument of shareholder reward, along with dividends.

In a recent filing, Microsoft stated that all but $3.614 billion of the current $40 billion program had been repurchased. It is certainly possible that Microsoft will finish executing the full $40 billion by the end of September. The company purchased $771,593,256 of its own shares in June alone, for example.

However, the new $40 billion program was preceded not only by the 2008 to 2013 $40 billion repurchase plan, but by another $40 billion plan. Here’s Microsoft in 2008 announcing its then-new, and now all-but-defunct share repurchase effort:

Microsoft Corp. today announced that its board of directors approved a new share repurchase program authorizing up to an additional $40 billion in share repurchases with an expiration of September 30, 2013. […] In addition, the company stated that it has completed its previous $40 billion stock repurchase program.

So, it’s $40 billion dollar repurchase plans all the way down. That makes today’s news somewhat predictable and, therefore — at least theoretically — included in Microsoft’s stock price before the announcement. The dividend change was also expected; while it was higher than some had anticipated, it was not enough to truly rock the boat.

Previous Microsoft stock buyback programs had end dates, meaning that they predicted a certain purchase-rate per year. For example, the current $40 billion buyback program that ends later this month had a five-year and eight-day period of activity. Therefore, Microsoft stated that it would buy up to $8 billion in its own stock per year, or $667 million per month. The newly announced $40 billion effort has no expiration date, making it perhaps less active on a recurring basis. Alternatively, Microsoft could accelerate its share repurchasing under the new program, but it remains unclear what the company intends.

As a final note, at $0.28 per share quarterly, Microsoft currently has a dividend yield of 3.4 percent. Apple almost yields 3 percent. Some tech companies are all grown up.