Icahn Enterprises LP (IEP, Financial) is the holding company for Carl Icahn (Trades, Portfolio), the 81-year-old billionaire investor who has built the master limited partnership into a pretty significant conglomerate. With major holdings across a variety of cash-rich industries and Icahn maintaining a 90% stake, it is a pretty good bet the dividend will remain high. I also believe Icahn is going to be able to do a better job capitalizing on the next bear market than most.
In the last 12 months, the company realized a net profit of $1.9 billion on $20.9 billion in sales. It receive $2 in dividends from CVR Energy Inc. (CVI, Financial), which has done pretty well as a stock year to date. It gets $1.60 per share from American Railcar Industries Inc. (ARII, Financial), and plenty of cash flow from the real estate it owns.
From Icahn Enterprises Latest Investor Presentation
Here is a breakdown of the company's holdings
Investment
This segment of Icahn Enterprises includes various private investment funds, including Icahn Partners L.P. (Icahn Partners) and Icahn Partners Master Fund LP (Master Fund). Interests in the investment funds are not offered to outside investors.
Automotive
This segment owns Federal-Mogul (FDML, Financial) and its subsidiary IEH Auto Parts, which collectively generates around 50% of Icahn’s top-line financial performance.
Energy
This segment has a controlling interest in CVR Energy, which has two major segments: CVR Refining is an oil and gas refiner; and CVR Partners produces nitrogen fertilizers.
Metals
This segment owns PSC Metals Inc. (PSC Metals), which collects industrial and obsolete scrap metal, processes it into reusable forms and supplies the recycled metals to its customers.
Railcar
This segment has a majority ownership interests in American Railcar, which designs and manufactures railcars.
Gaming
This segment owns Tropicana Entertainment Inc. (TPCA, Financial), with casino and entertainment properties in Atlantic City, Las Vegas, St. Louis, Baton Rouge and Greenville.
Mining
This segment owns Ferrous Resources Ltd., which holds rights to iron ore mineral resources in Brazil.
Food packaging
This segment owns Viskase Companies Inc. (VKSC, Financial), which makes and sells cellulosic, fibrous and plastic casings for the processed meat and poultry industries through 10 facilities and six distribution centers across North and South America, Europe and Asia.
Real estate
This segment consist of rental real estate, property development and associated resorts across both residential and commercial properties.
Home fashion
This segment is the smallest and least profitable. It operates though an indirect subsidiary, WestPoint Home LLC, a small manufacturer of home fashion consumer products.
The market bubble could continue growing for some time
The analysts that saw the housing bubble were calling it years ahead of time, only to be forced into riding out margin call after margin call on their short trades.
It is really hard to write about value investing when looking at the majority of potential trades leaves you scratching your head. The market continues to look artificially inflated with too much cheap money and not enough interest rate pressure coming. Like many bubbles, it is attempting to keep itself afloat on any news it perceives as good for business - like lower corporate tax rates.
That said, buying into a stock producing an 11.5% dividend in a company like Icahn’s is a solid use of capital, if nothing more than a hedge. Icahn Enterprises began paying a regular dividend in 2005 and has paid higher over time. Would this be a company to own for long-term capital appreciation? Doubtful. Its earnings are all over the place, the book value is lower than it was a decade ago and it pays out an 11.5% dividend - money that would be better used in buying new busisesses. That is not the reason to own this stock.
Icahn Enterprises may not be as diversified as Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial), but it has built a solid platform for profitability. It has to considering Icahn himself makes about $1 billion off the dividend, which is the only reason this is not a growth story. If that billion were reinvested into other areas, producing rates consistent with what Icahn has historically documented, then the company would be a lot more valuable. As it is, buy for the dividend. When (or if) Icahn leaves, we will see what happens with the MLP under new family leadership.
Disclosure: I am not long/short any stock mentioned in this article.
