Of course, HP's decision to spend a big wad of its cash on buying its own stock is much better than what it was doing previously, namely:
Buybacks are also preferable to paying an enormous one-shot dividend to shareholders, as Microsoft(MSFT - commentary - Trade Now) famously did a few years ago when it shelled out over $3 a share. Why should shareholders hold on to a company's shares after they've gotten their lottery-ticket bonus? Should they hang around and hope that the lucky lightning will strike twice?
A much preferable alternative, which HP should have considered -- and which Microsoft's board still has the chance of choosing -- is to dramatically increase the regular quarterly dividend. What am I talking about? Isn't this all financial engineering? Stock buybacks versus dividends? Next, surely, I'm going to be talking about Modigliani and Miller and ideal capital structure?
Well, that is mostly likely the reaction of Microsoft chief Steve Ballmer and many senior executives at S&P 500 companies when this topic comes up. I'm sure Steve Ballmer becomes more frustrated than most on this topic, because he must believe that he's tried to do the right thing in the past to appease shareholders -- that famous one-time dividend and many buybacks and dividends -- and it hasn't worked.