Big Buyback Bolsters Best Buy

Updated from 8:26 a.m. EDT

Best Buy(BBY Quote) announced plans for a $5.5 billion stock buyback, an increase in its dividend and a big boost to its store expansion targets, indicating that the consumer electronics giant still wants to grow as it continues to mature.

The news sent the retailer's shares up $2.11, or 4.7%, to $47.10 in recent trading.

Following in the tracks of Home Depot(HD Quote), which last week announced a $22.5 billion buyback program, Best Buy said it intends to repurchase $3 billion of common stock no later than February 2008. The remaining $2.5 billion is subject to business results, market conditions and board approval, the company said.

Best Buy currently has a market capitalization of roughly $21.3 billion, meaning a $5.5 billion buyback could cut its shares outstanding by one-fourth. The company has about 473.9 million shares outstanding.

In another effort to drive shareholder value, Best Buy said it will increase its quarterly dividend to 13 cents a share from 10 cents.

"Our 41 years of proven success, our strong balance sheet and our belief in our employees afford us the opportunity to fund multiple avenues of value creation at once," said Brad Anderson, the company's vice chairman and chief executive, in a statement.

The news comes a little over a week after the Minneapolis-based retailer posted disappointing earnings for its first quarter. Best Buy's profit unexpectedly slid 18% in the period as the company's sales mix shifted toward lower-margin products.