Is it Worth Buying AOL just for the Special Cash Dividend?

Aug 27, 2012 -

Special Cash Dividend

Just on Monday, AOL announced that they are expecting to pay a $5.15 special cash dividend on December 14th to shareholders of record at the close of business on December 5th. The ex-dividend date is December 3rd.  

Where is AOL getting this money from?

In June 2012, AOL sold 800 patents and their related patent applications to Microsoft for a little under $1.1B. Now it plans to return that money to shareholders.

Is it worth it to buy AOL just for the special cash dividend?

As of Monday close, AOL traded at $33.86/share. $5.15 is about 15% of that amount, which is a substantial dividend. If the stock were to fall to $28.71 on December 3rd, you would at the very least "break even". This is before trading fees of course. It hovered around $28 in July, but has been on a tear since. 

My first thought is, how can this company be gaining ground? It's dial-up services are obsolete. What other services/products does AOL offer?   

Recently AOL announced a $600M stock repurchase. An incremental $10 million was authorized by the Company on August 26. This has to be a sign of company strength. Or do they just not know what to do with their cash?

AOL has three revenue streams including advertising, subscription, and other. With advertising making up 60% of total revenues. Advertising is basically revenue they get from impressions and click-thrus on their pages. Surprisingly this portion of their revenue stream has been doing well and increased 6% 2012 6 months ended June versus 2012 6 months ended June. Subscription revenue is related to their internet services, which makes up about 35% of their revenues. This revenue stream has evidently declined during the years. Other is comprised of licensing revenues and only make up about 5% of total revenues.

There hasn't been any other interesting news about AOL. We all know that AOL is a dying brand and without any innovation, it relies heavily on advertising to survive. The fact that management is returning cash back to its shareholders, appears to me as if they don't know what else to do with their money.

Disclaimer: Article is written for informational purposes. It isn't intended as investment advice.
Disclosure: I have no position in AOL.
 
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