I respectfully disagree with you, buyorsell.

If the stock is significantly undervalued (which we all think it is), then it is better for the company to use excess cash to buy back stock. The reason is that the dividend that would be paid after those stock buybacks would be a much larger amount per share, which would cause a higher increase in share price. Here is an email that I sent to a fellow CSPI investor concerning this idea (is about 6 months old, so data is slightly stale):

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Current cash per share is about: $14.3mm / 3.48mm shares = $4.11

If they are able to buy back at current prices ($3.15) another 480K shares over the next two quarters (as you suggested on Yahoo's boards), and assuming cash balances only change by the cost of the buyback, you're looking after two more quarters at cash per share of:

$12.8mm / 3mm shares = $4.27

So let's say that they then appropriate $1mm a year to dividends forever, which would be a 33 cent dividend.

If they start the dividend right away, instead of the buyback, it would be a 29 cents. Let's further assume that, when the dividend is announced, the stock price will jump to something that gives a yield of 5%. So a 33 cent dividend would make the stock price $6.60, and the 29 cent dividend would make a stock price of $5.80. From our current trading price, that's up 109% by waiting for the dividend, versus 84% if they do the dividend immediately.

Just to push it even further, say they were able to buy another 1mm shares at current prices, in which cash per share would be:

9.65mm / 2mm shares = $4.83

A subsequent dividend of $1mm a year would mean 50 cents a share, which, with our 5% yield exercise would give a stock price of $10. And a more than tripling from our current $3.15 stock price.