* Raises share buyback program to $6 bln from $1 bln
* Starts quarterly cash dividend of $0.10 per share
* Shares up about 7 pct
May 30 (Reuters) - EMC Corp increased its share buyback program to $6 billion from $1 billion and said it would start paying out a quarterly cash dividend, falling into line with other large tech companies that are returning cash to shareholders.
Shares of the data storage equipment maker, which had been considering a change in its capital allocation strategy over the last few months, rose as much as 7 percent to $25.29 in morning trade on the New York Stock Exchange.
Rivals such as Hewlett-Packard Co and NetApp Inc , under intense pressure from shareholders, have recently said they will raise dividends and buybacks as growth slows in a tough IT spending environment.
“Large companies with strong free cashflow have no option but to institute dividends,” Craig-Hallum Capital analyst Rajesh Ghai said.
The first quarterly dividend of 10 cents per share will be paid on July 23 to shareholders of record on July 1, EMC said in a statement on Thursday.
FBR Capital analyst Dan Ives, who said the move was a prudent one, believes EMC could raise this dividend over time.
“We also loudly applaud the stepped up buyback program as the company can now take advantage of what we view as a major discrepancy between where the stock is currently trading and its core intrinsic value, which we view as much higher,” Ives said.
The intrinsic value of the stock is $29.90, 26 percent more than its Wednesday close of $23.66, according to Thomson Reuters StarMine data.
EMC plans to buy back $3.5 billion in shares by the end of the second quarter of 2014, Chief Operating Officer David Goulden said on a conference call with analysts. This includes the $500 million it has already spent on buybacks this year.
The rest of the shares will be bought back through 2015.
EMC’s growth rate has faltered over the past several quarters after years of solid growth.
The company reported lackluster quarterly results last month as customers kept a tight leash on spending, but sounded a positive note for the quarters ahead.
EMC shares, which have been under pressure this year, climbed about 5 percent after the results.
EMC said on Thursday it would take on more debt. It had $12 billion in cash and $1.7 billion debt on its balance sheet at the end of the March quarter.
“In the near term we also intend to create a more permanent tier of debt/leverage on our balance sheet, which will provide us additional financial flexibility to pursue our strategic priorities and growth objects,” Chief Exceutive Joe Tucci said.
FBR’s Ives said taking on more debt hinted at the possibility that EMC would look to make small acquisitions in the security, data analytics or cloud computing markets over the next 6-12 months.