Dividend Growth From The Web

Reuben is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

There's a misconception that growing technology companies don't pay dividends. This goes double for Internet related tech companies. However, this isn't necessarily the case, and a little research can lead to some interesting diamonds in the rough. IAC/InterActiveCorp (NASDAQ: IACI) is one such diamond.

Big Words from the Head Honcho
In late 2011, IAC's Chairman released an interesting statement along with the company's third quarter results:

“I think it’s an outdated and somewhat inane concept that high growth companies shouldn’t pay dividends. We’ve been growing our earnings consistently, have substantially no debt, and large reserves of cash. We should be and are committed to investing in our businesses wherever prudent, and returning a portion of the balance to our shareholders, in continued opportunistic purchases of the stock (we’ve bought in 42% of the Company’s shares over the last 3 years) and now, in paying a quarterly dividend.”

Now that's the kind of thing a dividend investor wants to hear! Even better, the company doubled the quarterly disbursement to $0.24 per share in late 2012. While words can be just that, the company's actions also make it clear that dividends are an important part of the business model.

Dividend focused investors looking for a way to benefit from the growth of the Internet should take the time to look at this obscure company, no matter the stigma attached to a dividend paying technology company.

The Dividend Stigma
Most investors think of technology as a high growth sector, where only slow growth or dying companies pay dividends. In fact, many appear to consider the payment of a dividend an admission that the future isn't as bright as it once was. The clear examples are old industry giants like Microsoft and Intel which together created to foundation of the personal computer revolution.

Those giants were massive beneficiaries of the shift from mainframe computers to a computer on every desk and in every home. With the introduction of mobile computing, popularized by Apple (NASDAQ: AAPL) and its iPhone and iPad products, these former darlings have taken their hits. Along the way, they initiated dividends and are now seen as tired, old companies.

In fact, even Apple isn't immune to the dividend malaise. Ever since Apple initiated a dividend, investors haven't quite looked at the company the same way. Case in point, the shares have been falling since about the same time that the dividend was announced. While the changed perception could be a function of reality setting in that Apple is a good, but not perfect, company, it's hard to avoid the coincidental timing.

Barry Diller say's Different
While the dividend stigma may be appropriate in some cases, it isn't always the case. In fact, when a famed manager and investor like Barry Diller, IAC's Chairman and the person behind the quote above, says his company is initiating a dividend and doesn't fall into the old tech mold, it's worth more research. The company's recent purchase of Tutor.com is a good starting point.

A Little Background
IAC is actually a collection of Internet sites, with such notable properties as Match.com, Ask.com, Dictionary.com, CollegeHumor, and CityGrid, among many others. It lays claim to “nearly a billion monthly visits” to the 150 or so brands under its guidance. That's a lot of hits and gives media mogul turned Internet investor Diller some serious street cred. In fact, the company seems like a mix of an Internet incubator, supporting new and exciting web ideas, and a turnaround shop, taking on older brands, like About.com, and trying to breathe new life into them.

The Tutor.com acquisition is a great example. The company connects tutors and students, nothing special, but a potentially profitable business as the use of the Internet has become an increasingly accepted education tool. IAC hopes to take its expertise in managing websites and grow the Tutor.com business. One notable path to growth is to increase Tutor.com's exposure in the consumer market, an area in which it has historically had little presence.

Cute, but you Missed the Story
Many media outlets have made hay about IAC using the Match.com dating algorithms to help tutor and pupil “meet”. That's a cute angle and a funny story. But the real benefit of this marriage will be using the IAC universe of properties to increase Tutor.com's presence on the web. That's the real story here and it will have tangible benefits.

It's also the reason why IAC is so interesting as an investment, aside from its 2% dividend yield. IAC has done a good job of running its sites and continues to add complimentary properties. Look for the company to remain dedicated to company and dividend growth. While those in search of current income and safety should look elsewhere, those with slightly stronger stomachs and a desire for dividend growth should definitely spend time examining IAC and its collection of web brands.


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ReubenGBrewer has no position in any stocks mentioned. The Motley Fool recommends Apple and Intel. The Motley Fool owns shares of Apple, Intel, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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