Microsoft (NASDAQ: MSFT) is forgetting what has worked for it in recent years: lavishing cash on its shareholders.

The stock lost more than half its value between December 1999 and summer 2006, but has since easily outperformed the broad market. That's partly because of brisk sales. PC unit shipments have increased 10% a year for three years. Microsoft has a fresh operating system on the shelves in Vista, barely a year old. And while Apple's (NASDAQ: AAPL) clever "I'm a Mac" commercials have won many of us over, Microsoft still has a 90% share of the market. Also, the company has done a much better job of late protecting against overseas piracy. So sales for its fiscal year ending June 30 are expected to swell 18%.

But much of the stock's success is owed to a plan announced in summer 2004. It called for stuffing $75 billion in cash into the pockets of shareholders through dividends (including a plump $3 a share paid one time) and share repurchases. Repurchases, of course, increase earnings per share and tend to make remaining shares more valuable.

Apart from the rekindled growth, the two main things to like about Microsoft today are that it still produces heaps of cash and that its stock is still reasonably priced. The company's cash on hand has recently grown to $19 billion or $2 a share. Shares finished trading Thursday at around 18 times trailing earnings, a slight premium to the broad market's 16 times earnings, but one that's warranted considering the growth spurt.

Now seems like a good time for Microsoft to retire more shares or create another shareholder stimulus package. But it has other plans. Today, it offered $44.6 billion for Yahoo (NASDAQ: YHOO). It will use all its cash and then some for half the purchase and pay for the other half with newly issued shares--the opposite of a repurchase.

I know: Think of the "synergies." I would, but I'd rather think of the math. Yahoo at Thursday's close was more than twice as expensive as Microsoft at 41 times trailing earnings. The price Microsoft is offering works out to 66 times earnings. And while Microsoft's earnings are seen increasing 26% this fiscal year (or were, until the deal's announcement), those for Yahoo are expected to shrink by a whisker.

Personally, I like Yahoo. I use its finance and movie pages often but I switched from its email a year ago. I was getting so many offers to refinance or enlarge things that I started to develop a complex. (And I don't have a mortgage.) Just sticking to the numbers, though, this seems like a case of what finance academics call "empire building." That's when companies spend shareholder cash on things that expand their influence but not their stock price. The preventative treatment for empire building is a generous dividend. If this deal falls through, Microsoft should up its payments.

Jack Hough is associate editor at SmartMoney and author of Your Next Great Stock