I'm told that messing with Texas is a bad idea. That may be true, but I'm about to take a close look at one of the Lone Star State's finest, and I can't guarantee that I'll like everything I see. My wife will surely be relieved to hear that my life insurance payments are current.

Last week, Dallas-based semiconductor veteran Texas Instruments (NYSE:TXN) announced that its board of directors had approved a 33% dividend hike and another $5 billion of share repurchases -- to be completed on the open market as prices and market conditions permit. Both of these moves are generally shareholder-friendly, but I'm wondering whether the company really is putting its money to the best possible use for long-term holders of the stock. Take a look at capital deployment trends over the past four quarters:

(Figures in millions)

Sep-05

Dec-05

Mar-06

Jun-06

Total Cash
& ST Investments

$5,251

$5,335

$3,664

$5,670

Free Cash Flow

$1,064

$562

$149

$265

Shares
Outstanding

1,618.10

1,600.30

1,558.00

1,532.60

Net Purchases of Common Stock

$336

$742

$1,298

$900

As % of FCF

32%

132%

871%

340%

Common
Dividends Paid

$41

$48

$48

$47

As % of FCF

4%

9%

32%

18%

R&D Expense

$527

$500

$505

$511
All data gathered from Capital IQ, a division of Standard & Poor's.

While it's great to see the share count dropping consistently -- thanks to the diligent buyback programs -- the company is digging deep in its coffers to do it. Apart from the September 2005 quarter, buybacks have exceeded free cash flow by almost scary margins every quarter. If Texas Instruments hadn't sold its sensors and control unit to private equity firm Bain Capital for $3 billion over the summer, cash on hand would have stood 49% lower today than it did last September.

OK, so share buybacks are a legitimate use of cash, but generally only under one of two specific conditions: share prices are too low in management's eyes, giving buybacks plenty of bang for the buck, or there's nowhere better to invest the money right now.

On the first count, well, what do you know! Texas Instruments is actually trading at historically low multiples to sales, earnings, and free cash flow today. Compared to its peers, it still looks reasonably cheap. Its 18.8 projected P/E for this fiscal year is a premium to National Semiconductor's (NYSE:NSM) 17.7 and Freescale's (NYSE:FSL-B) 17.8 -- Freescale's acquisition by equity firm Blackstone notwithstanding. But it's a significant discount to Linear Technology's (NASDAQ:LLTC) 20.3, QUALCOMM's (NASDAQ:QCOM) 23.2, or Broadcom (NASDAQ:BRCM), which trades at 35.9 times projected earnings.

OK, so that's a pass on the first test and no need to go on to speculation about where else to put the cash. Let me just note for the record that I'd be happier about increased R&D spending in lieu of at least part of the buybacks, as that's how technology companies invest in their own futures. But giving money back to shareholders -- when it's cheap to do so -- is all right for now. Carry on, gentlemen.

Further Foolishness:

Fool contributor Anders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdings or any of our investing newsletters. Foolish disclosure is well-rounded in and of itself.