Carl Icahn Cuts Fake Dividend – 3 Important Lessons

Carl Icahn says his company is cutting its dividend by 50%.

Icahn Enterprises (NYSE: IEP) will pay a $1.00 quarterly dividend – resulting in a 12% yield.

Cutting dividends is terrible news for shareholders. And shares of IEP crashed 23% on Friday as a result.

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Carl Icahn has been under pressure for months.

Hindenberg Research is a short selling fund. The firm makes bearish bets on stocks that it thinks will drop. And they then publish their research and get publicity for their trade.

Hindenberg published its bearish report on Icahn back in early May…

Icahn Enterprises: The Corporate Raider Throwing Stones From His Own Glass House

Inside that report – Hindenberg explained…

“Icahn Enterprises will eventually cut or eliminate its dividend entirely, barring a miracle turnaround in investment performance.”

That’s exactly what happened this week – with Icahn reducing its dividend by 50%.

The reason?

Well, probably because the business isn’t profitable. In fact, the losses at Icahn Enterprises continue to grow:

  • Quarterly net loss was $269 million – more than double the loss of $128 million one-year ago
  • Value of investments fell by $600 million in the first 6-months of the year

And it’s hard to keep paying dividends when you’re actually LOSING money.

Carl has been personally borrowing money and using his IEP shares to secure his loans.

There was concern that the falling price of IEP could force a margin call. In that situation, Carl’s banks could force him to sell IEP shares to maintain required loan-to-value ratios.

Last month Carl was able to restructure his loans – create a short-term bounce for IEP shares.

However, the recovery was short lived. IEP shares traded as low as $20.54 today – before closing the day at $25. The stock is approaching its 52-week low of $18 – set back in late May.

Investors DUMP Icahn Shares – Rush Buy THESE Dividend Stocks Instead

There are three important lessons from the Icahn situation.

  1. Stocks with a regularly dividend of 25% may be risky – and you really need to understand HOW the company is financing those payments.
  2. An incredibly high dividend is often a sign that the market thinks it’s unsustainable – and at risk of being cut.
  3. Stocks that cut their dividends are almost always punished and the share price will fall very quickly.

Buying dividend stocks, reinvesting the dividends and holding your stocks for the long-term can be incredibly profitable. However, it’s now as simple as buying the stocks with the highest dividend yield.

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