Special Dividend Boosts AOL

Remember AOL (NYSE: AOL)? That dial-up service that allowed you to connect to the Internet before the days of texting, G-chatting or Skyping?

Well, AOL is relevant again – at least in the investment world.

The company announced today that it is offering a special $5.15 dividend, and will also buy back $600 million of its own stock.

The news was enough to give the shares close to a 3% bump today. Incredibly, the stock has now gained 123% in 2012.

How has a company with a product that’s seemingly more outdated than print newspapers been flourishing this year?

It all started with its $1.1 billion patent sale to Microsoft (NASDAQ: MSFT).

The deal was announced back in April, giving AOL shares a 43% one-day boost. Microsoft bought more than 900 patents from AOL – a commodity that has become increasingly valuable in the hyper-competitive tech world.

Patents can be applied to smartphones and tablet computers, and allow companies to protect their products from being copied. It’s the type of thing can help Microsoft avoid the headaches and high costs of finding itself in a drawn-out legal battle like we’re currently seeing with Apple (NASDAQ: AAPL) and Samsung.

As for AOL, they are apparently pouring all of their patent-sale money into their one-time dividend and stock repurchase. The company said it expects to pay the special cash dividend on December 14 to anyone who owns the stock as of December 5.

That should encourage even more people to buy AOL stock in the coming months.

But don’t let the sudden fervor over AOL fool you. Prior to last quarter’s Microsoft-aided $970 million in profits, the company was struggling. In 2010, AOL lost nearly $800 million.

It’s still a nearly extinct technology. There’s only so much mileage AOL can get out of its patent deal. The stock can’t remain at these elevated levels forever if the company doesn’t figure out how to make money on its own again.

With a generous dividend imminent, however, AOL shares should continue to flirt with all-time highs for another few months.

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