Greenberg: The Ultimate Hail Mary Pass for Herbalife?

SAN DIEGO (TheStreet) -- Multi-level marketer Herbalife's (HLF) decision to kill its dividend and instead use the money to buy back more shares is both brilliant and high risk.

It's brilliant from the perspective that it will likely shake out marginal investors who might be quick to sell on the first sign of negative news. Instead, Herbalife will have more firepower to help squeeze earnings per share higher while supporting its stock in the face of news that normally might have shaken it.

At the same time, by getting rid of the dividend, Herbalife risks getting kicked out of index and other mutual funds that only hold dividend-paying stocks.

Here's where it gets tricky (and risky): Herbalife CEO Michael Johnson said in a press release that he believes the decision to increase buybacks "reflects our continued commitment to creating long-term value for our shareholders."

That may be. Trouble is, there is no shortage of companies whose CEOs said the same thing, only to buy high and see their stocks go lower.

By getting rid of its dividend, Herbalife is levering the remaining investors to that very risk, especially with regulatory and legal investigations just getting under way.

Reality: For the reasons cited above, until the regulatory risk clears, I believe earnings for Herbalife are little more than something to hang a headline on.

-- Written by Herb Greenberg in San Diego

Herb Greenberg, editor of Herb Greenberg's Reality Check, is a contributor to CNBC. He does not own shares, short or trade shares in an individual corporate security. He can be reached at herbonthestreet@thestreet.com.

If you liked this article you might like

These Are the Biggest Winners and Losers in Activist Investing This Year

These Are the Biggest Winners and Losers in Activist Investing This Year

Herbalife Is a Buy Now; Ask Me How

Herbalife Is a Buy Now; Ask Me How

Bill Ackman Overwhelmingly Loses ADP Battle in Latest Blow to Activist Investor

Bill Ackman Overwhelmingly Loses ADP Battle in Latest Blow to Activist Investor

What Investors Can Learn From the Herbalife-Ackman Saga

What Investors Can Learn From the Herbalife-Ackman Saga

Short Seller's Critique of Shopify Is 'All Smoke and No Fire'

Short Seller's Critique of Shopify Is 'All Smoke and No Fire'