Microsoft shares pop on dividend bump
Shares of Microsoft (NASDAQ:MSFT) traded higher on Tuesday morning following a number of key announcements from management. The company will now be upping its quarterly dividend alongside an additional share repurchase program. Microsoft’s new share repurchase program replaces a previous $40 billion repurchase program that was set to expire at the end of the month. Moreover, software company will now pay a competitive 3.4% dividend yield. This new payout will beat the 2.85% yield investors can get on 10-year U.S. Treasuries.
With a stockpile of cash on the balance sheet the company can afford to return significant amounts of capital to its shareholder base. At the end of the most recent quarter, Microsoft reported it had $77 billion in cash on its balance sheet. As of today, the company is one of four with a top notch AAA rating. This news follows the news of large acquisition just a couple weeks ago. Earlier in the month it was announced Microsoft will be shelling out $7.2 billion for a piece of Nokia (NYSE:NOK) . The deal includes an agreement to license Nokia’s patent portfolio for 10 years. Without it, Nokia’s devices and services business would have been worth about 3.7 billion euros according to some analysts.
Shares were up by more than half a percent during the day. However, shares did retrace by more than a percentage point from the highs seen at the start of the session. Going forward, falling interest rates should help the price of underlying shares. Over the last couple weeks the high dividend category has been hit with rising interest rates. As interest rates fall the spread between bonds and high quality dividend payouts rises. For Microsoft in particular, the spread between the dividend yield and ten year bonds sits at 0.65%. In the remainder of the week it will be likely a number of analyst will comment on the announcement.
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