Dell joins others buying back own stock

— -- If there's a shortage of cash and a credit crunch, the nation's largest corporations don't appear too concerned yet.

Awash in cash, companies continue to use sizable chunks of money to buy back their own stock.

Dell dell on Tuesday announced it will spend $10 billion in cash to buy its shares. That came a day after IBM ibm said it will spend $1 billion to buy back stock faster than expected as part of its plan to buy back $15 billion in shares.

Wall Street observers have been surprised at how companies continue to use precious cash to buy their shares despite reports of a slowing economy, tighter credit markets and falling profit growth.

Companies in the Standard & Poor's 500 are expected to buy back $565 billion of their own stock this year, 31% above last year's record $432 billion, S&P's Howard Silverblatt says. "That is an enormous amount of money," Silverblatt says.

The buyback binge is highlighting key factors including:

•Cash isn't as tight as believed, at least for large companies. The fact companies are willing to part with $565 billion in cash headed into what some economists predict will be a slow economy shows companies aren't as strapped as widely believed. "There's a lot of money out there," says Milton Ezrati of Lord Abbett.

•Executives are nervous about the economy's health in 2008. Companies are still reluctant to take gutsy moves, such as a large acquisition or new project, figuring they can put cash to work with less risk by buying stock, says James Paulsen of Wells Capital Management. Buybacks show companies have "buying power but are also evidence of fear," he says.

Companies also don't want to sign up for a regular financial obligation, such as a bigger dividend, if the economy will cool in 2008, says Scott Thoma of Edward Jones. That explains why dividends are expected to increase 12% this year, while buybacks are soaring, Silverblatt says.

But some worry buybacks aren't the best strategic use of cash. With roughly $13 billion in the bank and generating $1 billion in cash each quarter, Dell can easily afford the buyback, says Brent Bracelin at Pacific Crest.

But Shaw Wu of American Technology Research says Dell has other issues it could have considered first. Dell, which relies on direct sales, needs to expand its presence on store shelves to counter stiff competition from the likes of Hewlett-Packard hpq and Apple aapl, he says. And Dell's factories need to be retooled to better handle new PC designs and colors.

Investors may have hoped Dell could have spent some of the $10 billion remedying those issues and not buying its own stock, Wu says. Shares of Dell fell 34 cents Tuesday to $23.60. "Arguably, they have better things to invest in," Wu says.