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 fared better than just about anyone in the recession, but its stock is down 9% so far for 2009. Why? Wal-Mart shares outperformed the market by a wide margin in 2008, but now that many investors are looking to prepare their portfolios to profit from a turnaround, there is concern that Wal-Mart will be unable to sustain its momentum once people spend more money.

To capitalize on the stock price pullback, Wal-Mart announced that it would spend as much as $15 billion to buy back its own stock. And at the company's annual meeting on Friday, recently-installed CEO Mike Duke said that "Our customers will stay with us when this economy turns around and they have more discretionary spending, I promise."

Asked for his best wisdom on investing, Will Rogers provided this timeless pearl of wisdom: "Buy good common stocks and hold them until they go up. If they don't go up, don't buy them."

That seems obvious, but when it comes to share buybacks, public companies appear to be doing precisely the opposite: buying back their stock like a four-year old who drank too much grape juice when times are good and then putting on the brakes when the market softens. When they really screw it up, they end up raising money at poor valuations after a buyback spree put the company's balance sheet in trouble when the economy took a turn for the worse.

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.

A new report from Ned Davis Research shows that companies that consistently raise their dividends provide the strongest returns for investors over the long run.

But I'm still not a fan of dividends: They're incredibly inefficient when it comes to tax-season, making share buybacks far superior as a means of returning value to shareholders of an undervalued stock -- and if the stock isn't undervalued, why own it in the first place? It's my belief that shareholders in a company should always prefer buybacks to dividends -- if you'd rather pay a big tax to receive cash instead of receiving a larger stake in the company, why do you own the stock in first place?

The Wall Street Journal reports on the study: "Since 1972, members of the Standard and Poor's 500-stock index that consistently increased their payouts, or started making them, rewarded shareholders with a yearly average 10.4% total return (stock-price appreciation plus dividends). Those that didn't boost dividends clocked 8.2%. Most of the difference came from superior stock performance." (emphasis added)

Think about it: Companies that are able to boost their dividends consistently are also, generally (A) increasing their profits and (B) not blowing their cash flow on ill-advised acquisitions. Both of these would seem to be, I believe, much more strongly correlated with outstanding returns than returning cash to shareholders with taxes.

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.

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.

Yesterday at its annual shareholder meeting Wal-Mart Stores Inc. (NYSE: WMT) came out swinging. The company is taking on a defensive posture by reducing the number of new store openings for this year and the next three years. The plan for this year alone reduces the new store openings from around 250 to 190-200, thus saving the company some $1.5 billion in capital expenditures. The next three years will see new store openings around 170 per year. The company will also raise its dividend to shareholders, and the board of directors has authorized a new-replacement share buyback program of $15 billion. This replaces the "old" $10 billion buyback program that still had $3.3 billion to go.

All in all, the moves will help stop the bleeding at Wal-Mart. The company has been the poster child for almost every social ill, from executive compensation to woeful wages and benefits allotted to its rank-and-file employees. The shares bumped up nearly 4% in active trading yesterday. The markets were looking for any positive signals from this giant retailer to reignite its poorly performing stock.

Many have surmised that the wake-up call for Wal-Mart was the April same-store sales numbers, which were the worst recorded in Wal-Mart's existence. The strategy to curtail the new store openings could be the catalyst for decent same-store sales going forward. The biggest fear an investor has with any retailer is new store openings cannibalizing existing stores within close geographic proximity. A newer concept does not suffer from this fear as market penetration is the first order of business to accelerate growth. But in the case of Wal-Mart, the "s" word -- saturation -- has been one big concern.

Jim Cramer proposing on CNBC's Mad Money that Yahoo! (NASDAQ: YHOO) and eBay (NASDAQ: EBAY) should get together and merge. He is calling for this because the growth is slowing for both companies, and a merger could jump start it. Cramer contends that companies with slower growth have to do something to get their sizzle back. Cramer said that Microsoft (NASDAQ: MSFT) was reportedly in talks to buy Yahoo! and that the aQuantive (NASDAQ: AQNT) buyout signals it is willing to do deals. If these companies had better areas to invest in they wouldn't be propping shares up with buybacks. A merger would allow Yahoo!'s massive users to use Skype and PayPal to buy goods. Cramer thinks this would bring back growth, and would finally get Semel out of Yahoo!

This is just after Yahoo!'s chief technology officer bailed out of the company today. As Cramer is long Yahoo! in his charitable trust and as he's been touting ideas for something like this, this "call to merge" is hardly a surprise to me or to others. The market caps are very similar, although eBay is the larger company. You should know that if you are playing these stocks based only on Cramer's comments, then know that you are buying what is probably his third or fourth round of recommendations calling for this. This is the first time he made an entire segment on this would-be merger, but this is best defined as "re-information."

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

An article in the latest issue of Barron's (log-in required) laments the decline of dividend-paying stocks. A quote form Morgan Stanley's Henry McVey is telling: "A lot of corporations are missing the seismic shift in retail demand for yield" and adds that Americans over 65 have equity portfolios with an average yield of 2.6%, versus 0.8% for those under 65.

I'm sure I'll get some angry feedback from the pro-dividend crowd on what I'm about to say here. I already got some flack for an earlier piece on the problems with dividends, and I frequently wonder why people care about yield. McVey's comment and statistic is telling. I believe that it is further evidence of the old-fashioned nature of dividends and their irrelevance in the current investment landscape.

The chief culprit behind the demise of the dividend is the advent of widespread share buybacks, and with good reason. Buybacks just make more sense, especially from a tax perspective. When you receive a dividend, you must pay taxes on it immediately. The increase in per-share value caused by a buyback is allowed to compound for as long as you own the shares. So buybacks start out ahead in that regard. It seems to me that the only reason you should prefer a dividend over a buyback is that you think that cash in your pocket (taxable) has a better future than additional shares of the company. If that's the case, it begs the question: Why do you own the stock?

The "Totally Informal Economics Roundtable" (TIER) met this past week -- the esteemed round table achieves a quorum whenever yours truly and my three astute economist friends from graduate school convene to discuss matters economic ... or to celebrate the birthday of one our school-age children, or for another social occasion. This week the topic was the global savings surplus.

Earlier on The FLY and on bloggingstocks.com, the TIER commented on the global savings surplus, or more-broadly, the large and increasing pool of global capital that's spanning the globe in search of return and yield.

It's hard for Americans to think in terms of a "savings surplus" with the U.S. posting a negative savings rate for more than a year, a savings rate well below appropriate levels for an advanced industrial economy, but the world is awash in capital, fed in part by savings. China, Japan, the European Union, and some petro-dollar countries have vast amounts of surplus savings. This fact, combined with a corporate capital base in the U.S. and abroad, has produced a multitude of unexpected consequences -- consequences that have lasted longer than many economists and analysts expected, the TIER agreed.

The first and foremost consequence, the TIER agreed, has been continued low interest rates for long-term bonds, mortgages, and certificates of deposit. Further, although recently released statistics from the Congressional Budget Office indicate the U.S. budget deficit in fiscal 2007 could drop to as low as $150 billion, five consecutive years of plus-$200 billion deficits normally should have led to a crowding-out effect on capital, resulting in higher long-term interest rates. Those high rates did not -- and have not -- materialized, the TIER agreed, due to that foreign savings surplus -- foreigners' willingness to buy U.S. Treasuries while spanning the globe for return and yield.

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.