Microsoft raised its quarterly dividend by 22 percent and renewed its $40 billion share buyback program, extending an olive branch to investors who are expected to grill its outgoing CEO on Thursday about a costly foray into mobile devices.
The surprisingly big hike takes Microsoft’s dividend yield to around 3.4 percent, ahead of major tech corporations such as International Business Machines Corp and Apple Inc.
But it may not satisfy activist investment firm ValueAct Capital and its supporters, mainly other big investment funds, analysts said. Some investors held out hope for a bigger slice of the company’s $70 billion cash hoard, now that ValueAct has an option to take a seat on the software giant’s board and exert greater influence over the company.
ValueAct has not publicized its goals. But people familiar with the fund’s thinking say it questions Chief Executive Steve Ballmer’s leadership and the wisdom of buying Nokia Corp.’s handset unit to delve deeper into the low-margin hardware business, and that it wants higher dividends and share buybacks.
Microsoft’s shares finished 0.39 percent higher at $32.93 on the Nasdaq.
“I expected ValueAct to push for a big lump-sum payment like they have in the past,” said Fort Pitt Capital analyst Kim Forrest, who has not spoken with the fund.
“And this is Microsoft saying no.”
A hotly anticipated investor meeting Thursday will give shareholders their first chance to quiz management on who may replace Ballmer, who announced plans to retire within a year after ValueAct pressed for his ouster.
It is unclear how hard ValueAct pushed Microsoft to share more of its $70 billion cash hoard.
ValueAct CEO Jeffrey Ubben declined to comment about Microsoft during an industry event in New York on Tuesday.
For years, investors have called on Microsoft to return cash to shareholders rather than invest in peripheral projects, and limit its focus to serving enterprise customers with its vastly profitable Windows, Office and server products.
This month, it announced plans to buy Nokia’s phone business and license its patents for $7.2 billion, a hefty investment that some criticized as a foray into a field already dominated by Apple and Google hardware and software.
Microsoft has lost almost $3 billion on its Bing search engine and other Internet projects in the last two years alone, not counting a $6 billion write-off for its failed purchase of online advertising agency aQuantive.
Investors want a clearer picture of where Microsoft’s investments in devices will take the company in coming years, especially as its cash cows, Windows and Office software, come under attack from Apple and Google in the mobile market, and the likes of Evernote and Box begin to develop productivity software.
“They really need to address what Microsoft will look like in a few years, and what the end goal is,” Forrest said.
Microsoft ranks fourth on Wall Street in terms of actual cash payouts, behind Apple, Exxon Mobil and AT&T Inc.
In terms of dividend yield, it ranks fourth among U.S. information technology companies, lagging only Intel Corp., Seagate Technology and Microchip Technology Inc., according to S&P Dow Jones Indices.
“We view this as a further indication that things are changing at Microsoft with respect to corporate governance that we believe could benefit shareholders over the next six to 12 months,” Nomura Securities analyst Rick Sherlund said in a note.