Icahn Enterprises (IEP -1.36%) is the holding company of famed activist investor Carl Icahn, who has a long track record of successfully identifying undervalued companies and actively influencing them to become more valuable.

Investors may be drawn to the stock because of its hefty dividend payout. Over the past 12 months, the company has paid out $4 per share in dividends, giving it a trailing dividend yield of 23.7%. If you're considering buying Icahn Enterprises for its lofty dividend payout, you must consider a few things first.

Carl Icahn is a legendary investor

Carl Icahn considers himself a value investor, but he takes a much more active role in influencing the companies he invests in. He looks for undervalued companies that are underperforming, takes a large stake in those companies, and plays a role in reshaping management or a company's strategy to unlock more value for shareholders.

In the 1980s, Icahn gained a reputation as a "corporate raider" following his hostile takeover of Trans World Airlines and profiting from selling off its assets. More recently, Icahn took a stake in eBay in 2014 and pushed the company to spin off PayPal, which it did a year later.

Icahn is a legend in the investing world, but his approach is not something an average investor could achieve. While Icahn considers himself a value investor, his approach toward management is entirely opposite that of another legendary investor, Berkshire Hathaway CEO Warren Buffett.

Buffett takes a hands-off approach toward the companies he buys stock in because he invests in management teams he can trust. As a result, Buffett holds stocks for significantly longer, whereas Icahn tends to hold stocks for only a couple of years.

Icahn's investment performance has been disappointing in recent years

Investors may be drawn to Icahn's approach and want to gain exposure to it through Icahn Enterprises. However, the past few years have been tough for the investing portion of Icahn Enterprises. Over the past five years, the company has experienced a $6.1 billion net loss from continuing operations between its investment and holding company results, which include income from interest and gains and losses on equities and other investments.

A bar chart shows Icahn Enterprises net income (loss) from continuing operations from its investing activity.

Chart by author.

One reason for Icahn's lackluster investment performance was due to his short-selling activities. In recent years, Icahn has taken short positions, where he bets on a stock price to decline, or through other instruments such as credit default swaps (CDS), which are used to short commercial mortgage-backed securities.

Icahn addressed this in a letter to shareholders last August, stating that its returns "would have been far more impressive had we not strayed over the past several years from our activist methodology and shorted [or hedged] far more than was necessary."

He told investors that Icahn Enterprises did well with its long, activist positions, but its overly bearish bets dragged down performance. The company has significantly reduced its short positions, and Icahn told investors: "We intend to stick to our knitting and focus on our activist strategy."

Icahn Enterprises has some other businesses too, including companies across energy, automotive, food packaging, and real estate. Its largest holding is CVR Energy, and it owns 66% of the company's outstanding stock. CVR has been a solid performer in recent years, as its petroleum refining and nitrogen fertilizer manufacturing have done well amid higher prices and is one bright spot for Icahn Enterprises.

Short-sellers target Icahn Enterprises

Icahn Enterprises has been the target of the short-seller Hindenburg Research, which alleged that the company's net asset value (NAV) was significantly overstated and that it didn't have enough cash flow to support its distribution.

Icahn Enterprises has since cut its quarterly per-share dividend from $2 to $1. In the first quarter, the company reported a net asset value per share of $10.40, and today's share price represents a 62% premium to NAV.

Is Icahn Enterprises a buy?

Investors may be drawn to Icahn Enterprises for its lofty dividend payout. One reason to be optimistic is that the company is returning to its activist roots and reducing some of its short-selling exposure, which was a drag on its investment performance.

However, the stock has struggled to find footing since that short report was released and is still trading down 67%. It will take time to see if its pivot back to its activist roots produces meaningful results, and I think investors are best off avoiding the stock right now and looking elsewhere for high-yielding income stocks.