Microsoft Gives Shareholders a Gift

SAN FRANCISCO -- By raising its dividend Monday, Microsoft(MSFT) tried to flag down investors looking for a good stock pick.

Microsoft boosted its quarterly dividend by 2 cents a share to 13 cents -- double its typical once-a-year boost of a penny.

The dividend hike is part of a two-pronged way to return money to investors and lure back those disenchanted with a stock that has fallen by one-third in the past 10 months. The Redmond, Wash., company also authorized $40 billion in stock repurchases over the next five years.

Microsoft recently completed a previous $40 billion buyback program, making it "a natural time for the board to approve the new authorization," a company spokesman said in an email.

The moves helped to boost the stock nearly 3% in recent trading to $25.90. $1.03, or 4.1%, to $26.19 in recent trading, or 14 times trailing 12-month earnings.

A P/E ratio of 14 lags the sector. Application software companies have an average ratio of nearly 20. Competitor Oracle(ORCL) trades at 16 times recent earnings.

Microsoft executives are no doubt nostalgic for the days when the stock traded above $35 -- in November 2007 -- following two consecutive quarters of marked outperformance.

With the turmoil in the markets, Microsoft may think its business is not being valued fairly, says Allan Krans, an analyst with Technology Business Research.

"They are trying to get more money back to shareholders," says Krans. "They haven't been successful doing it through capital gains."