The fact that most companies don't pay a dividend is really a tax hack. Before 1980, most companies did pay dividends.
When the tax rate on capital gains (now 20%) dropped far below that for dividends (30%+), companies realized they could spend the same amount of money buying back shares. This should drive up the share price by the same amount as an issued dividend (do the math). The difference is that investors can sell shares and only pay 20% instead of 30%+.
"Qualified dividends" are taxed as long-term capital gains, or not taxed at all if you're in the 15% or 10% bracket: http://en.wikipedia.org/wiki/Qualified_dividend. Although apparently the reduced rates will expire in 2012 unless they're extended again.
When the tax rate on capital gains (now 20%) dropped far below that for dividends (30%+), companies realized they could spend the same amount of money buying back shares. This should drive up the share price by the same amount as an issued dividend (do the math). The difference is that investors can sell shares and only pay 20% instead of 30%+.