Microsoft Corp. has recently made waves by announcing two significant shareholder-focused initiatives: a 10% increase in its dividend and the unveiling of a massive $60 billion stock buyback program. These moves signal the company’s commitment to returning value to shareholders, but how do they compare to those of its peers in the stock market, and what can investors expect from these actions?
A Closer Look at the Dividend Hike
On Monday afternoon, Microsoft revealed plans to raise its quarterly dividend by 8 cents, or 10%, bringing the payout to 83 cents per share. This increase follows last year’s dividend hike, where the company implemented a similar 10% boost. Shareholders who are on record by November 21 will receive the new payout on December 12.
While this increase is a positive gesture for income-focused investors, Microsoft’s dividend yield remains relatively low compared to other companies in the Dow Jones Industrial Average (DJIA). In fact, it lingers near the bottom of the list, with only Apple and Salesforce offering lower yields. Microsoft’s implied yield now sits at 0.77%, up from 0.7%, but still ranks fourth to last among the 27 dividend-paying components of the DJIA.
For context, Microsoft’s fellow Dow component Verizon remains the leader with a considerably higher dividend yield, highlighting the disparity between tech stocks and more traditional dividend-heavy sectors like telecoms. Tech companies, especially those with strong growth prospects like Microsoft, often maintain lower yields because they prefer to reinvest profits back into their business, particularly in innovation and acquisitions.
Despite the lower yield, Microsoft’s dividend remains a symbol of its financial health. The company has consistently raised its payout over the years, reinforcing its reputation as a reliable dividend-paying stock. However, for yield-seeking investors, there are more attractive options within the DJIA. For those prioritizing capital growth and stability, Microsoft’s steady dividend hikes are still seen as a solid part of the investment thesis.
The $60 Billion Buyback: A Closer Look
Perhaps more attention-grabbing than the dividend increase is Microsoft’s announcement of a new $60 billion stock buyback program. Share repurchases have become a popular way for companies to return capital to shareholders, especially in the technology sector. By buying back its own shares, Microsoft reduces the number of outstanding shares, which can boost earnings per share and potentially increase the stock price.
This latest buyback is equivalent in size to the one Microsoft announced in September 2021, signaling consistency in the company’s capital allocation strategy. According to data from Birinyi Associates, Microsoft’s buyback ranks as the third-largest share-repurchase authorization among U.S. companies in 2024, trailing only Apple’s $100 billion buyback and Alphabet’s $70 billion program.
This raises the question: why are tech giants like Microsoft, Apple, and Alphabet pouring so much capital into buybacks?
The reasoning is twofold. First, these companies are sitting on enormous cash reserves, and buybacks offer a way to efficiently deploy that capital without committing to risky acquisitions or excessive expansion. Secondly, in an environment where stock prices have fluctuated throughout the year, buybacks allow companies to demonstrate confidence in their stock’s future performance.
Some investors view buybacks as a strong signal of a company’s belief that its shares are undervalued. By reducing the number of shares on the market, companies like Microsoft can support their stock price, particularly in periods of volatility. However, not all market participants agree that buybacks are beneficial in the long term. Critics argue that buybacks can be short-sighted, prioritizing immediate share price gains over investments in future growth.
Nevertheless, Microsoft’s $60 billion buyback puts it in an elite group. Aside from Apple and Alphabet, only Chevron has announced a larger buyback in recent years, with its $75 billion program earlier in 2023. This shows the scale and influence of Microsoft’s move, especially given the company’s size and market cap.
How Does It Compare to Peers?
Microsoft’s buyback program and dividend increase place it in a prominent position among its peers. For example, Nvidia and Meta have also authorized buyback programs, though theirs come in at $50 billion each. These numbers reflect the broader trend of tech companies using buybacks to bolster investor confidence and manage their share prices amid fluctuating market conditions.
Apple’s $100 billion buyback remains the largest, and this approach has long been a staple of its financial strategy. Apple, like Microsoft, has used buybacks to return significant amounts of cash to shareholders over the years, while still maintaining an emphasis on growth through new product lines and services.
Alphabet’s $70 billion buyback this year also illustrates the growing importance of buybacks in the tech industry. Companies with substantial cash reserves see buybacks as an efficient method to enhance shareholder value without undermining their growth potential. These programs, combined with dividend payments, are key tools in maintaining shareholder satisfaction, particularly as these tech giants continue to evolve in rapidly advancing markets like artificial intelligence and cloud computing.
What It Means for Investors
For shareholders, Microsoft’s latest moves are certainly positive. The dividend increase and the large buyback offer two distinct methods of returning capital, providing both income and potential stock price appreciation. Investors who have held Microsoft over the long term have already enjoyed substantial gains, with the stock up 16% so far this year.
However, it’s important to understand the implications of these announcements within the broader market context. While Microsoft’s buyback and dividend boost reflect confidence in its financial position, investors should be aware that these are part of a well-established pattern among tech companies. Large buybacks are not new, nor are dividend increases, especially for a company with Microsoft’s scale and financial strength.
For those looking for income, Microsoft’s relatively low dividend yield might not be compelling enough compared to higher-yielding stocks in the market. On the other hand, growth-oriented investors will likely see this buyback as a continued sign of confidence in the company’s long-term prospects.
Ultimately, Microsoft’s shareholder-focused actions highlight the delicate balance tech companies face—continuing to invest in future growth while returning cash to shareholders. Whether through dividends or buybacks, Microsoft appears committed to keeping investors satisfied as it navigates both current market conditions and the evolving technology landscape.
