by Marc Bastow | August 27, 2012 11:27 am
Now, that’s more like it.
AOL (NYSE:AOL) announced Monday morning that it will deliver investors an early Christmas present in the form of a $5.15-per-share special dividend (or roughly 15%) on Dec. 14 if you own the stock on Dec. 5.
The dividend is AOL’s way of paying it forward after raking in $1.1 billion from the sale of nearly 800 patents to Microsoft (NASDAQ:MSFT).
Of course, AOL didn’t exactly give it all back in one sitting. In addition to the one-time dividend, AOL also said it will bump up its previously announced share buyback extension from $550 million to $600 million.
It’s hard to say that getting into a flailing tech company that already has more than doubled in just eight months is a great idea, but it does have some merit.
What I like about this announcement is what AOL didn’t do — namely, dump it into an unnecessary or ill-advised acquisition. But really, who would it (or could it) buy?
Perhaps joining forces with equally struggling Yahoo! (NASDAQ:YHOO) might be an idea since they both have things to offer one another, like content and ad opportunities, but the chances of such a merger seem slim.
Second-quarter earnings (even backing out the transaction) improved, though revenues slipped as the dial-up model slowly but surely dies — particularly in the rural areas of the country where smaller, more nimble competitors like Frontier Communications (NASDAQ:FTR) and Windstream (NASDAQ:WIN) are making inroads into their territory.
The jury still is out on the “Patch” model, and while Huffington Post draws more eyes to the AOL portal, it’s still not clear whether or not it makes much money.
But ad revenues increased, and the aforementioned overall revenue decline was the smallest decrease in more than seven years.
So, do I think AOL is a strong long-term play that get gets you a nice, quick pop if you buy in over the next month or so? No to the former, but yes to the latter.
While the most recent earnings report showed signs of promise, AOL still has numerous long-term issues. But an immediate dividend on what could be a fairly short-term investment is not a bad play to make before Christmas — just as long as you keep your head about you, and realize that profit-taking could come soon thereafter.
Either way, Tim Armstrong gets a tip of the cap today. Investors got the good end of the deal on this cash spend.
Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing, he was long AOL and MSFT.
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