The 16% Icahn Dividend Analysis

Preparing for a bear market? Lets talk about adding Icahn Enterprises, they pay a consistent dividend and the yield is way up! With low beta and good track record 🚀

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What to do in a bear market? One way of protecting your portfolio is adding or rebalancing with dividend stocks and today, we’re going to talk about the Icahn Enterprises dividend. We’ll touch on:

  • Who is Carl Icahn?

  • What is Icahn Enterprises L.P.?

  • IEP Stock Analysis

  • The Dividend

But first, take a look at this just to give you a sense of the potential of adding this stock to your portfolio.

Who is Carl Icahn?

The famous businessman has been in the last few years the center of many critics for his role as a special advisor to the former president Donald Trump. But we’ll stay away from politics and focus on his financial achievements.

Before we start and specially for those who have a negative view on Carl Icahn, I just want to even the scale and maybe balance out some biases created by the media:

Carl Icahn created the Children’s Rescue Fund, which built a 65-unit complex for the homeless and mainly focusing on single pregnant women and single women with children. It also operates 2 other homeless shelters in New York City. All this apart from his constant philanthropy with large contributions to build a genomics laboratory at Princeton and more to Mount Sinai Hospital.

Now we can focus on his story.

Born and raised in Brooklyn, he studied philosophy at Princeton and then entered NYU to study medicine but dropped out to join the army reserves and in 1961 he became a stock broker until 1968 when he bough a seat in the NYSE and formed Icahn & Co.

For almost 20 years he focused on arbitrage and options trading until 1985, when he developed a reputation as a “Corporate raider” by taking over Trans World Airlines in what is called a hostile takeover and then stripping its assets to pay back the loan he took to do it. In 1988, he took TWA private and made half a billion dollars in personal profit. - not bad -.

A hostile takeover occurs when an acquiring company attempts to take over a target company against the wishes of the target company's management.

Since then, Icahn with his aggressive style have made the rounds in a wide array of industries like pharmaceuticals, gaming, entertainment, technology, automotive and more. In many cases, the style and force of Icahn have clashed with boards, courtrooms and other fund managers.

I’m not gonna lie, it seems like he has a long list of “enemies” but until we get to the dividend, lets keep remembering all the philanthropy ok? :)

And by the way, Icahn has been critical of passive investing and index funds, believing that the practice has led to a bubble in the price of US stocks. So I for one, am going to buy [passively] shares of his company IEP 😁


What is Icahn Enterprises L.P.?

Finally, we know who Carl Icahn is, but we’re really here to talk about his company and its dividend.

Icahn Enterprises L.P. or $IEP was created in 1987 and operates in investment, energy, automotive, food packaging, metals, real estate, home fashion, and pharma businesses in the US and internationally:

  • Energy: Refines and markets transportation fuels; and produces and markets nitrogen fertilizers in the form of urea ammonium nitrate and ammonia. - I also don’t know what that is btw, it was hard to write -

  • Automotive: Retail and wholesale distribution of automotive parts; and offers automotive repair and maintenance services. They also purchase and lease vehicles.

  • Food Packaging: Produces and sells cellulosic, fibrous, and plastic casings that are used for preparing processed meat products.

  • Metals: Collects, processes, and sells ferrous and non-ferrous metals, as well as processes and distributes steel pipe and plate products.

  • Real Estate: Rental of retail, office, and industrial properties; construction and sale of single-family and multi-family homes.

  • Home Fashion: Manufactures, sources, markets, distributes, and sells home fashion consumer products.

  • Pharma: Offers pharmaceutical products and services.

Yes, and I didn’t even go into the details which you can find on their annual reports on their website - But if your going to do that, you might as well also share this article? Come on, it took me a year to write “urea ammonium nitrate”! 🙏👍


IEP Stock Analysis

Icahn Enterprises L.P. has performed well over the last 5 years as we can see in blue on this graph even though as we’ll see, 2020 was a very bad year, as the economy improves, we should see all the segments of the business start to improve rapidly.

Usually at this point I put the balance sheet and we go over it, but this company is a bit different and understanding the balance sheet requires reading the earnings and quarterly results in depth, let remember this is holding company with huge investments and divestments.

Hell, I’ll put it here but if you want to know something in detail ask in the comments or go read the earnings report, this is an article not a book :) This part of the Quarterly Income Statements:

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We’ve seen in the last couple of weeks as Energy and Metals are moving upwards as inflation fears increase, the automotive industry is facing supply chain shortages and increased demand and production is going up (EV and Gas) and lastly, Comercial & Industrial Real Estate is improving rapidly - that’s why we see other players like Brookfield Asset Management and BlackStone buying like there is no tomorrow-.

Stocks like IEP with a broad spectrum of business verticals are very efficient went the market turns. But lets see the correlation:

As we can see, the correlation or beta is 0.53

A beta of less than 1 means it tends to be less volatile than the market. If a stock has a beta of 0.5 like this one, we would expect it to be half as volatile as the market: A market return of 10% would mean a 5% gain for the company. A market goes down 10%, our stock would go down 5%.

And even though its obvious, ill say it. Its not going to be the end-all-be-all for our portfolio, if the whole market goes down, it would hurt, but only half as much and maybe much less ;)

And here it comes, walking into the octagon: The Icahn Dividend.


The Dividend

The valuation of the stock is not only based on fundamentals but also on the expected dividend that was set above 5% in 2013 and has kept a positive trend until today:

I want to mention that I started writing this article when the yield was 16% but the price has moved up to 53,48$ in the last 2 days and now the yield stands at 15.10% - I’ll keep the designs and tittles the same, if I change it, the stock will move again and you’ll never read this 👍

And, how can they keep up a 15% dividend?

Well, stock holders can get their dividends in stock or in cash. As they write on their Q2 2021 presentation:

The board declared a $2.00 quarterly distribution payable in either cash or additional units. The default election (for holders that do not make a timely election) for this distribution will be a distribution paid in additional depositary units.

And as Carl Icahn holds between Icahn Associates Corporation and Icahn (Bret C) over 81% of the company, they can pay dividends increasing their number of shares and reserve cash for the remaining stockholders that do request it.

The remaining shareholders can convert their dividend at market prices.

And that’s it folks, Until next time!


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