There are two things we know about Oracle (NASDAQ:ORCL) CEO Larry Ellison:

  1. He prefers to deal in cash rather than equity when buying growth.
  2. He buys growth really, really well.

Ellison, you might say, is the opposite of Chesapeake Energy's (NYSE:CHK) Aubrey McClendon, who borrowed on margin to buy huge chunks of Chesapeake stock and was then forced to sell. (Whoops.)

Ellison and Oracle have no such designs. Rather, the database deacon's board this week said it would up its stock buyback program by $8 billion, presumably financed through free cash flow. (Oracle has produced $7.4 billion in FCF over the trailing 12 months.)

And now, the bad news ...
If there's a problem with Oracle's buyback, it's in the reasoning. Quoting from the company's 8-K disclosure form:

Oracle intends to use the additional authorization to repurchase its shares from time to time to offset the dilution created by shares issued under Oracle's stock option and employee stock purchase plans and to repurchase shares opportunistically. [Emphasis added.]

Offsetting dilution doesn't create value, sirs. Oracle, like Intel (NASDAQ:INTC) and Symantec (NASDAQ:SYMC) before it, is using my money to repurchase shares that would, if left on the balance sheet, reduce my claim on the cash flows of the business. Either way, cash isn't being returned to me.

I don't mind buybacks, Larry. I like that you're putting cash to work; it's one of the great strengths of your business. But if you have the capital, and you want to add value to me, as a shareholder, forget about offsetting dilution. Pay me a dividend instead.

Get your clicks with related Foolishness:

Fool contributor Tim Beyers recently returned from a tour of Silicon Valley with his Rule Breakers teammates, during which they visited more than a dozen established and emerging innovators. Care to learn more? Just tell us where to send you our updates. It's 100% free.

Tim owned shares of Oracle at the time of publication. Chesapeake Energy, Intel, and Symantec are Inside Value picks. Get access to all of Tim's Foolish writings here.

The Motley Fool's disclosure policy starts every morning with a good, strong cup of coffee. Please pass the milk and sugar.