What happened

Shares of Icahn Enterprises (IEP -0.12%) continued to sink this week, down as much as 13.2%, according to data provided by S&P Global Market Intelligence. The public investment vehicle for legendary activist investor Carl Icahn continues to get battered after Hindenburg Research released a scathing short-seller's report on the stock earlier this year.

As of this writing, shares of Icahn Enterprises have a total return of negative 42% in the last five years, significantly underperforming the S&P 500 over that time. 

So what

The original short report from Hindenburg claimed that Icahn Enterprises was using a "ponzi-like" structure to pay out its high dividend yield, which was propping up its shares. The short-seller claimed that Icahn would have to eliminate this dividend, which would send the stock price cratering.

So far, this thesis is coming to fruition, and quickly. Icahn Enterprises cut its dividend in half earlier this month in order to reorganize its financial structure, which sent the shares down. The stock is likely still feeling the effects of that dividend cut this week.

Hindenburg remains short on the stock and believes that Icahn Enterprises will eventually have to cut its entire dividend in order to make up for the poor investments it has made. 

Icahn said that the investment firm has made some recent mistakes such as betting against the broad market this year, which has risen significantly. Its long positions have also struggled, creating a double whammy of underperformance.

The 87-year-old investor said the company is getting back to making activist investments, which is what made Icahn his fortune earlier in his career. It is unclear what activist positions he will go for, but they will need to be successful if the team is going to turn around this multiyear stock rout.

Hindenburg is clearly betting that this is unlikely, at least in the short run, and that Icahn Enterprises will still eventually need to entirely eliminate its dividend. 

Now what

Icahn Enterprises is in a messy situation here. The company will likely have to cut its dividend -- a big draw for outside investors -- unless its investment performance turns around quickly. Management's track record has been poor in recent years and continues to use aggressive financial engineering to fund its capital-returns strategy.

For individual investors, it is probably best to avoid this stock and stick with simpler income plays instead.