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The world’s largest software maker, Microsoft Corp. (MSFT - Analyst Report), has authorized the repurchase of shares worth up to $40 billion during fiscal 2013. The new program, which replaces the previous one scheduled to expire on Sep 30, has no expiration date.

Additionally, the company announced its decision to raise the quarterly dividend by five cents to 28 cents per share. This translates a 22% increase from the prior dividend. The increased dividend will be paid on Dec 12, 2013, to stockholders of record on Nov 21, 2013. Prior to this announcement, Microsoft had been paying a quarterly dividend of 23 cents per share.

The strength of Microsoft’s business model reflects the company’s commitment toward returning value to shareholders with its strong cash generation capabilities. We believe that the continued share buybacks and dividend hike will increase investors’ enthusiasm for the shares.

Microsoft’s strong balance sheet and cash flows provide financial flexibility in matters of incremental dividend, share repurchases and accretive acquisitions. During the last concluded quarter, Microsoft spent $1.04 billion on share repurchases and $1.92 billion on dividends. The cash and cash equivalents were $77.0 billion at quarter-end, having increased $2.54 billion during the quarter.

Microsoft’s fourth-quarter earnings missed our expectations due to dismal performance in the Windows segment. However, we remain positive about Microsoft’s growing cloud business, improving prospects for its Server & Tools business and the subscription model for consumers in the Microsoft Business Division business. The dividend hike indicates that the company is confident about its steady cash flows.

Microsoft has a Zacks Rank #3 (Hold). Other stocks that the investors can consider this season are SanDisk (SNDK - Analyst Report), Micron Tech. (MU - Snapshot Report) and Silicom Ltd. (SILC), all carrying a Zacks Rank #1 (Strong Buy).

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