What’s Going On Here?

Microsoft, the world’s biggest public company, got even bigger when investors double-clicked its stock after it announced a higher-than-expected dividend and fresh round of share buybacks.

What Does This Mean?

• Even if you don’t own Microsoft shares directly, its sheer size – 4% of the US stock market – gives it a lot of sway over the market as a whole, meaning it’ll impact the size of your pension pot.
• Microsoft bought back $10 billion worth of stock 2 years ago, $20 billion last year, now the company’s doubling that again: this buyback would represent around 4% of Microsoft’s current $1 trillion-plus value. Investors will be pleased – they’re also set to receive a higher dividend.

Why Should I Care?

The bigger picture: Buybacks are still fashionable.

• Returning cash to shareholders was all the rage last year, and it’s still on trend this year. Some investors actually prefer the profit frozm buybacks to the income from dividends because of the lower tax rate it attracts.

For markets: Timing is everything.

• After a company has bought back its own shares, it might cancel them altogether. That means each remaining share will be worth more, providing the company’s value hasn’t changed (though buybacks normally boost a company’s stock price). Investors may also have had their eye on Microsoft’s  “record date” when they bought its stock, which rose 2% on Thursday. That’s when the company will take note of which shareholders are due to receive its latest dividend. Anyone else will have to wait for the next one – meaning Microsoft’s stock will likely fall that day.

Content source: Finimize. (2019) Microsoft? Word. Available from: https://www.finimize.com/wp/news/microsoft-word/ [Accessed 21 September, 2019]