I’ve written a few times in the past about the tempting teasers sent out by the folks at the Stansberry & Associates Dividend Grabber service … indeed, just the name of the newsletter itself is enough to dampen the lips — grabbing dividends, mmmm …

Unfortunately, it doesn’t quite work out every time. The first one of these teasers that I looked at was for Palm, just over a year ago. The stock was trading for about $17.50, and the company had just announced that they were going to restructure fairly significantly, a restructuring that included a big investment from private equity folks, the assumption of a lot more debt, and a large one-time special dividend to all shareholders of $9.

This new oil dividend has some similarities with the Palm situation, I expect … will it be a better or worse idea for investors?

In the case of Palm and their special payout last year, It took quite a while to get this all worked out — during which the actual underlying business at Palm continued to look pretty weak, with the Treo steadily losing share to the Blackberry and to the then-new iPhone, one product launch that was abruptly aborted, and, finally one promising product in the form of the cheap low-end smartphone, the Centro.

But work it out they did, and they did pay out that special dividend late last fall, so stockholders all got their $9 checks.

Unfortunately, if you stop for a moment to do the math you come to the realization that frustrated many subscribers to the Dividend Grabber service — not every big special dividend is a good deal. In this case, imagine that you bought shares at $17.50 (you could have gotten them for a bit more or less, certainly, but that’s the price I saw on the day I first saw the email ad).

Take away the $9 special dividend. Simple math here, we all remember subtraction — so now your cost basis in the shares is $8.50.

Well, dang — today the shares are trading at about $5.50. So you’ve got the $9 in your pocket from the dividend, and a share in a heavily indebted company that’s worth a lot less than you paid for it at the moment. And I don’t know how they structured that dividend, but I suppose you might even have had to pay taxes on it.

I don’t mean to cool the jets too much here — there has certainly been plenty of academic research done that dividend paying stocks are stronger than those that don’t pay dividends, over the long run. And I’ve seen analysis that’s fairly compelling that, most of the time, companies that make big special dividend payments tend to see their share price also rise over the coming six months to a year. That stands to reason — a special dividend will usually be sent to shareholders becaue of some significant shuffling at the company, shuffling which should be expected to improve their performance … either that, or it might be due to a spinoff or sale of a division that was distracting from the core focus, or just — as was the case with Microsoft a couple years ago — a company acknowledging that it had an embarrassingly huge pile of cash and no idea what else to do with it.

So, oftentimes, a company paying out a special dividend might be worth a look. But that doesn’t mean you shouldn’t consider it just as carefully as you would any other investment — I still wouldn’t touch Palm, personally, largely because of the shoddy two-steps-behind products I’ve owned from them in the last two years, and their seeming inability to catch up with their much stronger and wealthier competitors, so I certainly wouldn’t buy shares just because they were planning to return some cash to me — a special dividend in the short run is almost always entirely neutral, they send you the cash and the shares drop by the exact same amount. In the long run it might be a good thing IF it’s done for the right reasons and if you think the company is a compelling buy for other reasons.

So there’s the longest preamble in the history of Gumshoe nation, eh? We do indeed have a new special dividend company to look at today, and it’s in the energy sector.

In case you haven’t noticed, the price of oil is pretty high, and most of the companies in the oil patch are using hundred dollar bills to light their cigars again. Oh, you had noticed? Right … maybe the newsletter guys thought that whole “oil” thing would catch your attention as you come in on a Monday morning after spending $380 to fill your tank, hmmm?

Here’s what they say in the ad about the potential for these types of investments:

“We analyzed 5 years of these special dividend situations and many times these companies see their share price take off 3-6 months following a big dividend payout.”

Which I won’t argue with — though note that “many times” is not a particularly precise analysis. It’s also true that “many times” the shares do not take off within six months.

The more distressing quote is …

“Anyone can use this strategy to collect extra cash quickly and easily …”

And that just bugs me — because you can’t collect extra cash quickly or easily just from getting a special dividend. That’s like saying you can collect extra cash quickly just by buying half as many shares as you were planning on — if you buy a stock because of a special dividend that’s coming in a few weeks or months, and you get that dividend, you’re effectively just getting back some portion of your capital. That’s capital, as in, “money you had in the first place.”

But I’ll get off my high horse for just long enough to try to figure out what oil company they’re talking about … stay with me …

Here’s what they provide by way of details … or as I like to call them, “clues”:

“On April 21, 2008 an American oil company announced it will pay a 21% dividend, totaling over $600 million in checks…

“The company is a $1.27 billion oil services company based out of Midland, Texas.

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“If all of our analysis checks out, investors in this dividend should expect to earn 21% (pre-tax) if they decide to buy for the dividend.

“In other words, if you own 1,000 shares of this company, you’ll collect $6,700. With 2,000 shares you could make $13,400. And with 5,000 shares you make $33,500 – all with 24 hours.

“You’ll find all the details in our newest report ‘Grab the Biggest Oil Dividend.’”

So … feed that into the mighty Stock Gumshoe Thinkolator, and I can, with a pleasant smile, reveal that this next “dividend grabber” company is …

Basic Energy Services (BAS)

And this is not just an ordinary special dividend, this is a merger — Basic Energy Services is going to merge with Grey Wolf (GW), if plans proceed as expected, and shareholders will receive a slice of the new company (to be precise, they’ll get exactly 0.9195 shares of what they’re calling “new Grey Wolf”) and a one-time payout of $6.70.

So, yes, if you buy shares of BAS now you will probably get a cash payout of $6.70 at some point in the next few months, whenever the merger goes through. You’ll also get something less than a share of the new company that will result from the combination of Grey Wolf and Basic Energy Services, to be called Grey Wolf.

These are both energy companies, but specifically oil and gas services companies — BAS does a variety of well service work for a huge number of companies — as the teaser ad hinted, they do work for more than 2,000 companies across 10 states, mostly in the American West. Grey Wolf is a driller that has been known for a while as a volatile natural gas drilling company, rising and falling with the price of gas.

So, given the businesses these guys are in, you will not be surprised to hear that they’ve both been spectacular stocks to own for the last six months. And they’re both still quite small, right around $1.5 billion each, so even as a combined entity they’ll be a $3 billion company in a hot sector, which means it wouldn’t be outside the realm of possibility to see them grow nicely from here.

Will they? I don’t have much of an idea, I’m afraid. Don’t know either company all that well. I do know that the cash payout at the merger probably serves two purposes: It makes the shareholders more excited about the merger and more likely to support it; and it evens out the math a bit to make it a little easier to create a fairly divided new company owned by these two groups of shareholders.

This is not dissimilar to what happened when Transocean and GlobalSantaFe merged, by the way — they paid a special dividend to shareholders, in part to ease the path to approval. And the new Transocean has been a spectacular investment … but in no way is that because of the special dividend, in my opinion, it’s because it’s a great business that made a good merger with a large competitor, and is in a sector that is incredibly hot.

Grey Wolf shareholders, by the way, will also get a special dividend — also pretty close to 20%, a dividend of $1.82 on what is currently a $9 stock. I have not looked at the merger details, so I don’t know if either one of these companies is getting a better deal — they’re both up since the announcement, though BAS has done slightly better, on average, since the merger was announced. Perhaps that’s because they’re the slightly smaller partner in this “merger of equals.”

And as for dates, the various dates they’ve used for a “buy by” date in the teaser are just pulled from thin air — they announced that they expected this merger to close in the third quarter, but there’s no “ex dividend” date because this isn’t really a dividend. I expect they’ll probably release specific dates at some point, but I wouldn’t let those dates influence you too much — if this plays out in the short term as they usually do, you can buy before the merger and get some of your cash back, or buy after the merger and pay a little less.

The one real complication is that it’s always possible that the merger won’t go through — Precision Drilling Trust, a Canadian Income Trust that is a much larger land drilling company than either of these guys, has also made several unsolicited bids for Grey Wolf. No idea how that will work out, but GW keeps resisting them and saying that they’re committed to the BAS deal. Or who knows, maybe Precision Driling will wait until they merge and buy the whole thing — PDS is about the same size as the newly combined GW/BAS company would be ($3 billion market cap), and for strategic tax reasons they’re probably very interested in expanding to the South.

Both BAS and GW are, on the face of it, reasonably priced with PE ratios in the low teens, and if the domestic land-based oil service sector continues to be red hot they’ll probably continue to do well, too. I see no reason why a merger like this (not knowing the details) wouldn’t be a perfectly reasonable idea. I wouldn’t buy for the dividend, which won’t make much difference overall, but I wouldn’t not buy because of the dividend, either — look over the companies, check out their prospects, make some guesses as to whether they’re going to be more efficient or effective after the merger, and then you’ll have your answer about whether buying either Grey Wolf or Basic Energy Services is a good idea.

And while you’re at it, let the rest of us know what you think, will you?