If you've been following the headlines, you know that share buybacks are way, way, way down over past years. Just last week, Standard & Poor's reported that stock buybacks by companies in the S.& P. 500 fell to $24.2 billion in the second quarter of 2009. That was down 28%from the first quarter and was a mind-blowing 72% below the figure for the same quarter of 2008.

Of course the irony is that by backing up the truck to buy back shares in past years, companies depleted the cash they could have used to buy back stock now -- when their share prices are a lot lower.

Wal-Mart Stores Inc. (NYSE: WMT) has put a halt to its share buybacks for the time being, citing a desire to take a conservative approach to working capital in light of the weak economy.

CFO Tom Schoewe told investors in October that the company was taking a "step back" from share buybacks: "It's not that we don't have confidence in our stock, and in fact I like the value today, better today, than I did a month ago, but we just thought to be consistent, to be conservative ... we did step back."

Wal-Mart's stock has performed exceptionally well this year as consumers look to save money by heading to the big box store. The stock is up about 19% since the beginning of the year compared with declines in the 35% range for the broader market.

Given that the stock hasn't been beaten down, it probably makes sense for Wal-Mart to conserve its cash to take advantage of opportunities created by the struggles of its competitors.

Mad props to Wal-Mart's board of directors and management for resisting the urge to pump up the stock with buybacks that aren't necessarily in the best long-term interests of the company and its shareholders.

Big US companies must not think much of their own prospects. With many stocks at multi-year lows, firms are not stepping up to buy their own shares. That seems odd because a number of the largest corporations are sitting on billions of dollars in cash. The lack of buybacks may be as bearish a sign as investors can find.

According to the FT, "Regulators have sought to encourage companies to buy shares in the open market by easing restrictions on corporate buy-backs as part of emergency measures introduced last month." But, no dice.

It is understandable the forums with modest cash balances would not be in the buyback market, but that leaves a number of very large, cash-rich corporations from Altria (NYSE:MO) to Google (NASDAQ:GOOG). They almost certainly have excess capital that they will not need, even in a deep recession.

The lack of buybacks leads to only one conclusion. Company managements and boards think their stocks will go much lower. They do not want to look foolish if they put capital into falling shares But, over a long period of time America's large corporations should hold their value. Too bad even insiders do not look at it that way.

Douglas A. McIntyre is an editor at 247wallst.com.

The Wall Street Journal reports (subscription required) that 2007 was a record year for share buybacks, especially among financial companies. With the market down, a lot of those repurchases aren't looking so smart. The Journal adds that "the buyback boom looks to be in its final innings. In the fourth quarter last year, buybacks fell 18% from the previous quarter, the biggest quarter-to-quarter drop in more than five years."

Making it worse, many of those companies that bought back stock aggressively are now issuing more stock to shore up their balance sheets, and those offerings are being priced at beaten-down valuations. Companies have essentially bought back stock at $100, then sold it at $50, and paid a bunch of fees in the process. Not a good business model.

But let's not throw the baby out with the bath water. Because of the unfavorable tax treatment of dividends, I would argue that share buybacks are the best way for companies to invest excess cash when opportunities to achieve high returns reinvesting in the business are not available. If you're long a stock, presumably you think it's undervalued -- so why would you want to have the company send you cash to pay taxes on, rather than giving you a larger chunk of the business?

The problem is that many buybacks seem to have been done for the purpose of propping up the share price while insiders dumped. But that's a separate issue.

I've written about share buybacks a fair amount in the past: whether insiders were using them to prop up share prices while they dumped, what role they have played in sustaining past bull markets, and whether they create long-term value for shareholders.

In Sunday's New York Times, Mark Hulbert wonders whether they're still good for investors. According to Hulbert:

S&P focused on those companies within the S&P 500 index that repurchased shares between the beginning of 2006 and June 30, 2007 - a total of 423 companies. It found that, as of Sept. 30 this year, 320 of them - or 76 percent - would have been better off had they not repurchased their shares and instead invested in an index fund benchmarked to the S&P 500.

There are a number of possible reasons for this: companies may be buying back their own plummeting stock in desperation as insider options fall farther and farther out of the money. For instance, Countrywide Financial (NYSE: CFC) actively repurchased stock, even as its CEO dumped huge numbers of shares and the company's prospects weakened.

Dell (NASDAQ: DELL) has filed all of its past due quarterly financial statements with the SEC. That means that the Nasdaq no longer has a reason to delist that company. It also means that the PC company can begin its huge share buyback program again.

Dell sent in the filings after an investigation "found that senior executives and other employees manipulated the company's financial statements to give the appearance of hitting quarterly performance goals," according to The Wall Street Journal [subscription required]. The adjustment to net income for the four years was a modest $92 million.

In 2005, Dell's board had set up a plan to buy back as much as $10 billion worth of shares. But the investigation of accounting problems covered fiscal years 2003 through 2006, and the program was suspended.

With a market cap of $66 billion, buying $10 billion in shares could give earnings per share a very big lift.

Douglas A. McIntyre is an editor at 247wallst.com.

The large number of responses we received to my story Home Depot management should stock shelves & help some customers tells me I touched an important subject in the minds of our readers. Almost all the comments supported my contention that the first step toward improvement of The Home Depot (NYSE: HD) must come from management creating a deeper dialog with employees, customers and shareholders. This means management must roll up their sleeves and get personally involved with customers and staff.

Not surprisingly Home Depot executive management had nothing to say and no comments were received from Home Depot, not even a public relations person. It would have been spectacular if there was a dialog. I have been a supporter of giving management time and have viewed the stock as a value proposition this year. I might change my mind if Home Depot does not radically improve the level of dialog. If any Home Depot Executives read this I hope they will add their voice. I think I will send this post to Home Depot and see what happens.

Meanwhile Home Depot also announced the sale of its HD supply to private equity group for $10.3 billion as well as a $22.5 billion Increase in its share buyback plan. This jump started the stock for a day or two, and maybe the reduction in the number of shares will have the desired effect in raising shareholder value, but if you get the cash from borrowing or by selling assets the value may be dubious since each share is part of a smaller company. Prettier picture, less substance.

Last December, over 100 stocks were featured in our Top Picks for 2007 report. Now, at mid-year, we turn to the 20 advisors whose picks showed the strongest gains to get an update on their previous picks, as well as a new favorite stock for the second half of the year.

David Fried, editor of the Buyback Letter, chose Big Lots Inc. (NYSE: BIG) as his favorite stock for 2007, which rose 39% as of 6/1/07. Please see his original recommendation and his current opinion on Big Lots.

Fried's new pick is SkyWest, Inc. (NASDAQ: SKYW). He explains, "SkyWest, the nation's largest independently owned regional airline, is a contract carrier for United Airlines, Delta Air Lines and, most recently, Midwest Airlines.

"Nimbler than the big legacy carriers and not burdened by their bloated labor costs, SkyWest has a steady earnings stream, good cash flow, and an attractive P/E of 11. Its reputation as an efficient, low-cost operator and as the best-managed regional airline in the business was enhanced with the 2005 acquisition of Atlantic Southeast Airlines, which made SkyWest a player on the national stage.

"Since the mid-1970s, SkyWest has grown from a company with annual revenue of under $1 million to a publicly held company with annual revenues of more than $1 billion and almost 15,000 employees. SkyWest is set for continued long-term growth.

The "Heard on the Street" column in last Tuesday's Wall Street Journal (registration required) talked about a growing trend of companies borrowing large amounts of money to pay dividends. When I started writing for BloggingStocks several months ago, one of the first pieces I wrote was called A rally of declining yields: Should you care? If you read that piece, you will get a good idea how I feel about dividends.

Let's take a logical look at the idea of borrowing money to pay a dividend: A company borrows money at an interest rate which, however low, will likely be substantially higher than what an investor would earn with a savings account (even if it is a high-yield account such as those offered by EmigrantDirect and ING Direct). So, assuming the investor puts the money in a savings account, he is effectively borrowing money at X% to invest it at X-2%. This is not a good deal.

But let's assume that the investor doesn't put it in a savings. Let's say he decides to put it in his favorite stock that he considers to be undervalued. Let's say he puts it in the stock that paid the dividend. If he does that, he will essentially have been charged a hefty tax to plow the money back into the company. This is also not a good deal.

In cases where a company's management believes the stock is undervalued and the company is financially stable, borrowing money to buy back shares can be a good way to increase shareholder value. But, in my opinion, borrowing money to pay a dividend never makes sense.

Are companies exceedingly confident in the financial outlook for themselves and the industries that they operate in to a level that will initiate some of the largest amounts of share buybacks in recent memory? Example: shareholders of Anheuser-Busch Cos (NYSE:BUD) have requested gobs of share buybacks and the company has been listening and acting on those wishes. But why?

Anheuser-Busch wants to change the cash flow to total debt ratio it has to between 25% and 30%, from the prior target of 30% to 40% -- ah ha (or so it seems). Anheuser-Busch also approved the repurchase of 100 million shares (about 13% of stock outstanding). Total buybacks amounts for 2007? $2.5 billion.

Some companies are actually taking on debt at the same time they are buying back their own shares in droves. These companies appear to want to reward shareholders through buybacks or dividends (whichever is cheaper, trust me). But, as the BusinessWeek article notes, investors may want to consider whether the short-term benefit from share repurchases merits the added risk of more debt being added to the balance sheets of these companies. Where is your comfort level?