There are a lot of ways to keep share prices rising and stockholders happy. AOL Inc. (NYSE: AOL) has chosen the direct way: pay them off. The special dividend of $5.15/share, for a total payout of $1.1 billion, is just the latest in a string of share buybacks that have boosted the share price from a 12-month low of around $11 to about $34.

Whether AOL’s share price is sustainable is questionable. Operating cash flow was just $167 million in the most recent quarter, compared to a $957 million inflow from investing, mainly the result of a patent deal with Microsoft Corp. (NASDAQ: MSFT). The company’s subscriber base for dial-up Internet access is dwindling and advertising revenue from its web portal is rising, but not fast enough.

AOL announced another $550 million share buyback program earlier this month that gives the company the ability to acquire almost 20% of the outstanding shares. That ought to keep investors happy for a while longer.

Eventually though, AOL is going to have to boost operating revenues and profits. That could be tricky.

Shares are off today about 0.5% at $33.68 in a 52-week range of $11.07-$34.51.

Paul Ausick

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