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AOL planning stock buyback with patent portfolio sale proceeds?

Internet company is looking to bolster its stock price rather than put cash in shareholders' pockets, sources tell All Things D.

AOL stockholders expecting a big dividend check after the Internet company's $1 billion patent portfolio sale to Microsoft might be a little disappointed.

After examining its tax strategies and consulting major stockholders, the company has decided a stock buyback is the best way to use the gains from the $1.06 billion sale of some 800 patents and related applications, sources close to the situation tell All Things D.

AOL promised that the proceeds from the sale, which closed on June 15, would be returned to shareholders, although it was unclear whether that would be in the form of a special dividend; the company said it would offer more specifics at the end of the month.

CNET has contacted AOL for comment and will update this report when we learn more. But at the time, the company said it was "committed to returning 100% of the patent proceeds to shareholders. AOL's Board and management team are currently working on determining the most efficient and expedient method to return the proceeds of the patent transaction."

Microsoft announced in late April it would assign a portion of the purchased patents and patent applications to Facebook as part of a $550 million cash deal. The social-networking giant is currently involved in litigation with Yahoo over patent infringement claims and purchased 750 of IBM's patents covering "software and networking" technologies to bolster its own portfolio in March.

Even without a dividend, shareholders should see gains as stock buybacks generally lead to increases in a company's stock share price. That should go a long way toward appeasing shareholders, who have seen the share price decline 8 percent in the past year and 20 percent in the last five years.