Investors like Warren Buffett get more fame, but billionaire Carl Icahn is one of the country's most successful business people. An activist who invests in and helps turn around businesses, he's amassed a fortune of roughly $18 billion.
Today, Icahn houses most of his wealth in his publicly traded holding company, Icahn Enterprises (IEP -0.12%). His company, a master limited partnership, contains a variety of stocks and private businesses and distributes cash to shareholders at a 15% yield at today's share price.
Pick your jaw up off the floor; that's not a typo. Can investors count on this massive yield moving forward? I've got you covered. Here is what you need to know.
Breaking down Icahn's massive fortune
Carl Icahn founded his enterprise in the 1980s, steadily building it up over decades. Today, it's a master limited partnership with holdings spread across seven major categories, including:
- Investments
- Energy
- Automotive
- Food Packaging
- Real Estate
- Home Fashion
- Pharmaceuticals
You may notice that Icahn's business focuses on established, durable industries that people have used for hundreds of years and will likely continue using. Holding companies have many moving parts, which makes it hard to decipher their financials. Below you'll see how the company's profits fluctuate due to constant variables like capital investments or non-cash adjustments.
IEP Free Cash Flow data by YCharts.
However, Icahn Enterprises has steadily accumulated assets over time, growing from $21.3 billion in 2010 to $27.9 billion today. As an activist investor, Carl Icahn will use his company's capital to opportunistically invest in a troubled company's debt or stock and work with management to improve the business, increasing the value of Icahn's stake.
Buy Icahn Enterprises for the income
You're looking at the wrong stock if your goal is price appreciation. Below you'll see how Icahn Enterprises has performed over the past decade. The stock is flat after 10 years-all investment returns have come from its cash distributions.
As a Master Limited Partnership, Icahn Enterprises must pass on most of its earnings to unitholders as cash distributions. The company's quarterly distribution is $2, meaning a current annual sum of $8 per share, a 15% yield at the current unit price.
Investors should understand the nature of Icahn Enterprises before buying units. On the one hand, unit holders won't see much growth because earnings leave the business by design. On the other hand, you'll get more passive income holding Icahn Enterprises than most stocks.
Can investors count on getting paid?
A big dividend (or distribution, in this case) doesn't mean as much if you can't rely on it. Icahn Enterprises sets the distribution amount, and investors dictate the yield based on what units trade for on the market. A high yield could signal that investors aren't confident a company can afford its payout. So where does that leave Icahn Enterprise and its vast 15% yield?
Icahn Enterprises is a holding company with many investments and subsidiary businesses. The inconsistent financials mean investors should look at the holding company's liquidity rather than a set payout ratio. You can see that the company has various sources of cash, totaling more than $6.8 billion. Distributions totaled $222 million in 2022, so there's plenty of cash available to fund the dividend.
Image source: Icahn Enterprises.
However, the company's liquidity is also how it funds new investments. The distribution has been cut a few times over the past three decades, and increases can be infrequent. The company's quick ratio of 4.4 indicates that it has enough liquid assets to cover its short-term liabilities four times over, a good sign. Still, remember that the payout is flexible, and growth opportunities could take priority at any point.
Acknowledging these risks, the company's strong liquidity position and short-term financial flexibility should give investors confidence that Icahn Enterprises can continue distributing cash to unitholders comfortably. If you're looking for income in a volatile market, why not partner up with one of Wall Street's superstar investors?
