Can You Have Your Stock and Sell It, Too?

But the good ol' days appear to be over. A 1995 study by David Ikenberry, Josef Lakonishok, and Theo Vermaelen in the same publication looked at 1,239 open-market share repurchases from 1980 to 1990 and found that announcement of those buybacks sparked a five-day price jump, on average, of just 3.5 percent. Other research conducted between 2000 and 2002 says the gains are less than half that percentage.

Meanwhile, critics are sounding off on companies' tendencies to buy high and then see the price track lower. Sometimes much lower. Dell spent more than $7 billion on its stock in 2005, buying shares priced in the mid 30s; as of September the company was trading in the low 20s. "A buyback is bad when shares are overpriced," says Michael Gumport, a certified financial analyst and founder of consultancy MG Holdings in Summit, New Jersey. "If you don't know the value of your stock, it's really simple; you just pay a dividend. I know plenty of companies that bought back shares and found out a year or two later that they would have saved a lot of money by waiting." — R.M.

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