NEW YORK  - Microsoft’s rising cash pile may burn a hole in its pocket. The software giant raised its dividend by a modest 9.5 percent on Tuesday, virtually assuring the company will increase the $58 billion hoard on its balance sheet. Why the AAA-rated outfit needs so much dry powder isn’t clear – but it may tempt boss Satya Nadella into extravagant dealmaking.

Nadella has done a fine job with Microsoft, using Office and other enterprise software as a base for expansion. Corporate customers have switched to online versions of these programs, and bought more cloud storage, computing and services along the way. The result has been sales growth, and a rapidly rising market capitalization - it’s now worth nearly $870 billion - as investors figure customers are locked into Microsoft for years to come.

Now he faces a pleasant problem – what to do with the cash the company is throwing off after capital expenditures. He’s chosen a bit of everything. In the financial year ended June 30, the firm paid $12.7 billion in dividends and repurchased $10.7 billion of stock. It also agreed to acquire programming storehouse GitHub for $7.5 billion and repaid some debt. Still, its cash pile grew by nearly $11 billion, not counting the GitHub deal, which has yet to close.

While shareholders may welcome the dividend increase, it’s less than the annual average boost over the past five years. It will eat up barely a fifth of the $5 billion in additional cash flow analysts think the company will generate this year.

That means Microsoft’s prudent balance sheet is on track to become even more so. That is, unless the firm has its eye on bigger deals. Under Nadella, the firm has purchased LinkedIn, GitHub and the maker of online interactive game Block Craft for a combined $37 billion. And Nadella passed on Salesforce.com in 2015 when its founder demanded too high a premium. That company is now worth $116 billion, or about twice as much as Microsoft wanted to pay. That miss, and Microsoft’s excessive cash pile, may persuade Nadella to reach for the sky the next time he pursues a cloud-based software company.

CONTEXT NEWS

- Microsoft said on Sept. 18 that it was raising its quarterly dividend by 9.5 percent, to 46 cents per share. Over the last 12 months, the company paid out $12.7 billion in dividends.

(Editing by Tom Buerkle and Amanda Gomez)

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