Yahoo!

(YHOO)

is giving shareholders a little support by putting its cash to work.

Shares of the Sunnyvale, Calif., Internet icon rose Thursday after the company said it allocated $3 billion for a stock-repurchase program. The company says it will fund the repurchases with cash from operations and points out that it has $4.6 billion in cash on hand. The company spent $165 million on buybacks last quarter and has about $175 million worth of repurchases pending.

Tech shops with lots of cash use stock buybacks primarily to curry favor with investors and as an alternative to paying dividends. Typically, the move comes if the stock has drooped and remains stagnant or continues to slide. Some outfits, like

Cisco

(CSCO) - Get Report

, have used repurchasing to offset the heavy dilution from employee stock compensation practices.

Yahoo! has all these elements going for it, say observers.

The stock is down 16% so far this year and insiders have sold 5.6 million shares in the past six months, according to Yahoo! Finance.

"I think they're frustrated with the stock and having a hard time finding good acquisitions," says one New York-based money manager. Also, "there's been a lot of insider selling, so the big buyback helps."

Seems Yahoo!'s chief has been a leading seller among insiders. CEO Terry Semel has sold 4.68 million shares, or $149 million worth of stock, since April, according to Yahoo! Finance. Semel held 5 million shares as of January, according to federal filings.

To some industry observers, Yahoo!'s buyback plan is good news. It signals that the company is not bowing to peer pressure and tempted to use its cash on dilutive acquisitions. Recent deals in the sector include

eBay's

(EBAY) - Get Report

pending purchase of

Rent.com

and this week's move by

IAC/InterActiveCorp

(IACI)

to pay $1.8 billion for search site

Ask Jeeves

(ASKJ)

.

It also sends a better signal to Wall Street than a dividend, say investors.

A dividend is an outright admission that growth is slowing, and certainly not something Internet investors would be keen on hearing, say observers.

One fan disputes the notion that Yahoo! has lost out to rival

Google

(GOOG) - Get Report

as the darling of the search-engine industry. He says that may have been true late last year, but as the search mania recedes a bit, Yahoo! looks to be in a better position than Google. "Yahoo! is diversified, with rich media and its subscription businesses," says the investor, who currently holds Yahoo! or Google shares.