At least in economic theory, a company does not give out dividends if it believes that it can get a better return on its cash (in terms of profit) than the investor can in the overall market.
But, companies must eventually give out dividends. There's a certain point at which the company's cash hoard gets so large that investors become unhappy (see Microsoft).
Yes, theoretically. In practice, managements have a long history of buying stock back at inflated prices and buying back stock simply to hide the shareholder dilution that is occurring due to management equity compensation. I prefer dividends to buybacks.
Companies tend to announce buybacks when things are going well and their stock is fully priced. How many companies were announcing buybacks in December 2008 when it would have really made sense?
But, companies must eventually give out dividends. There's a certain point at which the company's cash hoard gets so large that investors become unhappy (see Microsoft).