Operationally, Yahoo! YHOO is almost free after removing investment holdings. Yahoo! shares more in common with investment firm Icahn Enterprises (IEP) than it does with Google and Microsoft. During the last earnings report, the share movement was reflective of its investments more than its online market share.

Alibaba's market cap valuation may exceed $160 billion. That's $36.8 billion pretax. Yahoo! is expected to own a sizable portion after Alibaba's IPO. We also don't know how effective the bean counters will mitigate Yahoo!'s capital gain exposure for the Alibaba stake sold during the IPO. Allowing for tax and other deductions, at $160 billion market cap, Yahoo!'s valuation is increased by about $26 billion.

The 35% of Yahoo! Japan that Yahoo! owns is worth about $5.4 billion and is sitting on another $1.6 billion in liquid assets. Added together, the investments are worth in the neighborhood of $33 billion. Yahoo!'s total market cap is less than $36 billion at Monday's close.

In other words, Yahoo!'s core business is worth only about three times what Tumblr sold for to Yahoo!. Paying a dividend will bring in funds and investors that limit their investments to dividend payers. Paying a dividend will reward long-term holders who have waited an eternity to get a piece of the pie that management has received for years.

In February, I advised investors to buy Yahoo! because the market was overly discounting the growth potential. At the time, Yahoo! was over $38, and the shares have become even cheaper since on a cost of earnings basis. Since management is failing to excite Wall Street on its growth prospects, it no longer has a reason not to pay a dividend.

At the time of publication the author had no position in any of the stocks mentioned.

Follow @RobertWeinstein

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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