Microsoft announces big buyback, raises dividend

With its share price having spent the first part of the millennium in the doldrums, Microsoft (NASDAQ: MSFT) is putting its $23 billion cash pile to work -- and it's not being used for anything as exciting as an acquisition of Yahoo (NASDAQ: YHOO).

In a press release, the company announced that it had increased its quarterly dividend by 18% to 13 cents a share, and perhaps more interestingly, the board of directors authorized the company to repurchase $40 billion worth of stock.

Shares of Microsoft were up about 5% on the news in pre-market trade, but investors shouldn't read too much into it. A dividend hike of 8 cents per year is not exactly a reason to buy a stock, and as with any buyback announcement, this is an authorization, not a commitment. Microsoft might buy back $40 billion worth of stock and it might not buy back anywhere near that much.

Speaking on CNBC last week, Carl Icahn, who is now on the board of directors at Yahoo, reiterated his commitment to pushing the two companies into a deal of some kind. If it ends with an acquisition, Microsoft's buyback could be off the table.