Microsoft Corp. announced a significant 11% increase in its quarterly dividend and approved a new $60 billion share buyback program. The tech giant's latest moves underscore its robust financial position, particularly in the face of heightened competition and the ongoing investment in artificial intelligence (AI) infrastructure.
The new quarterly dividend, which will be paid on December 12, rises to 83 cents per share, up from the previous 75 cents. This marks Microsoft's 20th consecutive year of increasing its dividend, a streak that highlights the company's consistent commitment to returning value to shareholders. The dividend hike pushes Microsoft's annualized payout to $3.32 per share, which is higher than the company's stock price was back in 1994, a remarkable testament to its long-term growth.
In tandem with the dividend increase, Microsoft's board has approved a share repurchase program of up to $60 billion, a move that could reduce the number of shares outstanding by approximately 1.9% at current stock prices. Although this buyback represents less than 2% of the company's $3.2 trillion market capitalization, it reflects the company's strategy to use its considerable cash flow to enhance shareholder value.
Investors responded positively to the announcement, with Microsoft's stock rising by 1.7% shortly after the news broke. The company's shares have been on an upward trajectory, having climbed steadily over the past six sessions, recovering all its moving averages and surpassing a short-term high of $426.79.
The dividend hike and buyback come at a time when Microsoft is under pressure to demonstrate the tangible benefits of its significant investments in AI infrastructure. In July, the company reported a more than 75% increase in capital spending for the quarter ended June 30, largely driven by AI-related expenses. Microsoft is among the few tech giants that break out AI contributions in their quarterly earnings, a move that distinguishes it from competitors who have yet to see a substantial financial boost from their AI investments.
Despite these impressive financial maneuvers, Microsoft's dividend increase, while substantial, is outpaced by other companies in the S&P 500. For instance, electrical components maker Amphenol recently raised its dividend by 50%, and financial services company Intuit increased its payout by 16%. Semiconductor equipment manufacturer Lam Research also announced a 15% hike in its quarterly dividend. These companies have demonstrated even more aggressive dividend growth, highlighting the competitive landscape in which Microsoft operates.
Moreover, cookie giant Mondelez and bank State Street both recently raised their dividends by about 10%, while GE Aerospace made a staggering 250% increase in its quarterly payout back in April. Nvidia, another tech powerhouse, raised its dividend by 150% when it split its stock 10-for-1, although it still maintains the lowest dividend yield in the S&P 500 at just 0.03%.
The broader context of Microsoft's financial strategy suggests that the company is keenly aware of the importance of dividends in long-term stock market returns. Historically, dividends have accounted for about 40% of total stock returns over the long run. Microsoft's ability to afford such generous returns to shareholders is supported by its projected free cash flow of approximately $81 billion for 2025, which comfortably covers the new dividend payments and leaves ample room for the share repurchase program.
