Shares of Micron Technology (NASDAQ: MU) popped on Thursday, jumping as much as 6.5%. As of 1:52 p.m. ET, the stock was still up 6.5%.
The catalyst that sent the memory and storage chipmaker higher was an announcement that bodes well for shareholders.
Buybacks resume
In a regulatory filing with the Securities and Exchange Commission (SEC), Micron's management updated the status of its stock repurchase program. The company initiated its buyback program in May 2018 through a variety of "open market purchases, block trades, privately negotiated transactions and/or derivative transactions." However, in December 2022, management suspended that program, citing the industrywide downturn.
Fewer sales and reduced cash flow put Micron in a tenuous position, and management decided to preserve precious capital to better deal with the difficult economic conditions.
This week, Micron said, "In light of improved conditions, on August 7, 2024, the company determined that repurchases may resume, which will help offset dilution from employee stock purchase programs. The company maintains its commitment to further strengthening its balance sheet and sustaining its investment-grade credit rating."
What this means for investors
Like many technology companies, Micron offers its employees incentive stock options as a form of compensation. This allows employees to buy shares of company stock during a set period of time for an agreed-upon price, incentivizing employees to help the company succeed while they benefit financially from that success.
On the other hand, this generally requires the issuance of additional shares of stock, which results in share dilution, thereby eroding value for current shareholders. Many companies enact buyback plans to offset that dilution, which, in turn, benefits shareholders by stemming the dilution.
Micron shareholders cheered the news, sending the stock higher.
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Danny Vena has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Why Micron Technology Stock Rallied on Thursday was originally published by The Motley Fool