Microsoft Corporation: Why Traders Are Going Nuts For MSFT Stock Today

Microsoft CorporationMSFT Stock Hikes Dividend

Shares of Microsoft Corporation (NASDAQ:MSFT) gathered steam after the company dropped a bombshell Tuesday evening. Not only did the board of directors raise the quarterly dividend by eight percent, but it also greenlit a plan to repurchase $40.0 billion worth of MSFT stock.

The $0.03 dividend hike, from $0.36 to $0.39 per share, was predictable in the extreme. In fact, it continues a long tradition of dividend hikes for MSFT stock. The company has raised its payouts nine times in the last 10 years. (Source: “Microsoft is planning to buy back almost 10% of itself,” Business Insider, September 20, 2016.)

But no one really expected the company to authorize a buyback of $40.0-billion-worth of Microsoft stock. That part was a shock, especially because the company is almost finished its original buyback program. As of December 31, 2016, they will have bought back $40.0 billion worth of MSFT stock.

That was apparently round one. But starting next year, management gets to launch round two which gives them the authority to repurchase nine percent of the firm’s outstanding shares. There’s no deadline either. Microsoft could spread out the payments over a long-time, but recent history shows they’ll probably lump it over the next few years.

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Unsurprisingly, Microsoft stock rose 1.1% in after-hours trading.

The MSFT stock dividend is payable December 8, 2016 to anyone who purchased Microsoft stock before November 17, 2016. It marks 52 straight quarters of dividend payments for the company, something few can hope to equal. The hefty cash payouts are particularly notable in light of the stock’s recent growth.

Microsoft stock jumped 29% in the last 12 months, far exceeding the type of growth that’s typical of mature companies. Analysts have turned bullish on the expansion plans laid out by CEO Satya Nadella. He brought the tech giant back to its workplace-focused roots, eroded the internal divisions, and expanded the cloud computing business.

Under his leadership, Microsoft wrote down losses from the disastrous Nokia acquisition. Then they spent $26.0 billion buying LinkedIn Corp. At the time, some investors worried it could pose a problem for the company’s dividend or ability to buy back shares. It appears there was no cause for concern.

We expect further volatility in MSFT stock.