Microsoft is to buy back as much as $40 billion (£22 billion) worth of its own stock through the next five years.
The share re-purchase announcement is a follow-up to similar plans made in 2004 and 2006, when the company bought $30 billion and $40 billion of its own stock, respectively.
The company's board of directors also declared a quarterly dividend of 13 cents per share.
"These announcements illustrate our confidence in the long-term growth of the company and our commitment to returning capital to our shareholders," said Chris Liddell, the company's chief financial officer, in a statement.
Analysts had wondered what Microsoft would do with its cash after it was spurned by Yahoo , which it first offered to buy Yahoo in February for an estimated $44.6 billion. When Yahoo said the bid was too low, Microsoft withdrew its offer in May.
According to Microsoft's most recent financial statement, it had $23.7 billion in cash on hand on 30 June 2008.