Microsoft authorized one of the largest stock-repurchase programs in corporate history Monday in a bid to improve its stagnant shares. The company also made...

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Microsoft authorized one of the largest stock-repurchase programs in corporate history Monday in a bid to improve its stagnant shares. The company also made a modest change in its financial structure — long sought by investors and analysts — by taking on a small amount of short-term debt.

While the Redmond software giant has made a habit in recent years of taking shares off the market, investors were still pleasantly surprised when it authorized an additional $40 billion buyback over the next five years.

Shares gained as much as 4 percent early Monday and finished the day with a small gain, 24 cents, to $25.40, as broader markets plunged on anxiety over the government’s bailout of Wall Street.

Microsoft shares are down more than 28 percent this year. The Nasdaq composite index is down 17.8 percent.

As part of the moves, Microsoft also increased its quarterly dividend to 13 cents a share, payable Dec. 11 to shareholders of record Nov. 20. It had been 11 cents.

The buyback program and increased dividend could improve Microsoft’s stock-market performance, an issue Chief Executive Steve Ballmer broached with employees at last week’s company meeting.

“Microsoft has indicated that they thought that their stock was undervalued, and I think they’re actually taking measures to prove that,” said Sid Parakh, technology analyst at McAdams Wright Ragen in Seattle.

Charlie Di Bona, analyst at Sanford C. Bernstein & Co., said he expects Microsoft to burn through the $40 billion buyback authorization in as few as three years, and even that will be front-loaded, given that the company recently dialed back share repurchases.

“If they do what we’re expecting, [earnings per share] is going to rise a little faster because they’re going to be buying back shares quicker,” Di Bona said.

Indeed, after repurchasing shares worth $27.1 billion in its 2007 fiscal year, Microsoft kept more cash in the coffers in fiscal 2008. It took only $12.4 billion worth of shares off the market, conserving cash for its failed attempt to buy Yahoo.

That still left Microsoft with $23.6 billion in cash and short-term investments — much less than the $60 billion it had on its balance sheet in 2004 when investors and analysts were clamoring for a better use of the treasury.

Microsoft has whittled that pile through share repurchases and dividends totaling $115 billion in the last five years, the company noted.

Chief Financial Officer Chris Liddell said in a statement that the latest moves “illustrate our confidence in the long-term growth of the company and our commitment to returning capital to our shareholders.”

Some analysts and investors have urged executives to further trim the cash balance and use debt to buy back even more stock. (Friedman Billings Ramsey analysts issued a research brief in July: “Come on Steve, How About a Levered Buyback?”)

Microsoft took a first, small step in that direction, authorizing the issuance of up to $6 billion in debt “for general corporate purposes, which may include funding for working capital and repurchases of stock.”

It is starting with $2 billion in commercial paper — corporate debt, currently with interest rates about 2 percent, that can be bought and sold and is typically issued for terms of three months or less.

The name is in reference to the paper on which the borrower’s commitment to repay is printed. Microsoft received the highest corporate credit ratings available.

The small debt issuance informs an ongoing debate about Microsoft’s financial identity. In its 23rd year of public trading, is it a growth stock or a value stock?

Executives see Microsoft as the former, pointing to double-digit increases in sales and major investments in potentially huge markets such as digital advertising.

But rising dividends and now debt could indicate a turning tide. Still, analyst Parakh said, “They want to be a growth company, and I don’t think they’re going to change that.”

Growth companies, particularly in technology, have historically carried little debt. But that trend has started to reverse, said Nick Nilarp, an analyst following technology debt issuance for Fitch Ratings.

“I think it’s a continuation of technology companies recognizing the need to issue debt in the U.S., particularly as their cash positions get built up overseas,” Nilarp said. “We expect this will continue for the industry, and technology debt issuance has been fairly strong in 2008 so far.”

While Microsoft’s highly rated debt probably could find investors in almost any market, the company sees an opening in the ongoing upheaval in global credit markets.

In a statement explaining its first-ever commercial paper program, Microsoft Treasurer George Zinn said, in part, “investors’ current appetite for high quality paper provides a unique opportunity.”

Benjamin J. Romano: 206-464-2149 or