Icahn Enterprises: An Income Investor’s Best Friend

icahn-enterprisesWhen the opportunity arose to add Icahn Enterprises LP (NYSE: IEP) to the High Yield Wealth portfolio in July, I pounced like Michael Moore on an unattended Burger King Triple Whopper with cheese (1,300 calories, by the way).
At the time, Icahn Enterprises had just hiked its distribution 25% to an annual rate of $5  per unit. The higher payout generated a luxurious 7% yield on the prevailing market price. The chance to invest along one of the world’s greatest value investors and get paid 7% to boot was impossible to pass up.
I can’t say I’ve regretted the decision: In just over four months, Icahn Enterprises has generated a 60% total return for the High Yield Wealth portfolio.
Admittedly, I’m biased. I share an affinity with Carl Icahn: Both of us understand the important role dividends and income play in the wealth-generating process. Long term, dividends account for 40% of the total return generated by the S&P 500. Dividend growth is key driver of share-price appreciation.
If you are unfamiliar with Carl Icahn, his modus is straightforward: Seek undervalued companies in the Benjamin Graham tradition, a methodology for unearthing value in depressed prices. The difference is that while the typical Benjamin Graham value investor purchases undervalued securities and waits for results, Icahn purchases undervalued securities and agitates for change.
“Agitates” frequently means pounding the table for dividends and buybacks. Icahn understands, as do I, cash that flows to investors is what ultimately matters. You’re the investor; the company should be run for your benefit.
Icahn has a 40-year history of successfully pounding the table for shareholder interest. This year alone, Icahn Enterprises has chalked up a number of successes – Netflix (NASDAQ: NFLX), Apple Inc. (NASDAQ: AAPL), and Herbalife (NYSE: HLF). His strategy for Apple and Herbalife, in particular, is to get more cash to investors.
This month, Icahn scored another cash-to-investors success with Transocean (NYSE: RIG), a large offshore drilling contractor. Thanks to Icahn’s large equity position – 21 million shares – and relentless agitating, Transocean will switch to a master limited partnership organization, raise its annual dividend 33% to $3  a share, and reduce its board count to 11 from 14.
Due mostly to Icahn’s influence, Transocean shares have popped 12% for all Transocean shareholders.  Of course, Icahn Enterprises investors have benefited as well.
Accumulating investing successes is a key reason Icahn Enterprises is up nearly 70% for the year. If we go back 10 years, the accumulation of investing successes becomes even more pronounced: Since November 2003, Icahn Enterprises units are up over 622% compared to 68% on the S&P 500 – and compared to 107% on non-dividend-paying Berkshire Hathaway (BRK.A).
I still like Icahn Enterprises to this day. To be sure, the distribution yield on the current market price – down to 4% – is less luxurious than in July, but it’s still higher than most quality blue-chip investments.
Besides, there are still plenty of companies to which Icahn can apply his value-extracting magic for Icahn Enterprises investors. He says as much himself.
“There are many companies that are undervalued and badly managed,” Icahn told Barron’s. “Icahn Enterprises is uniquely positioned to do that because we have permanent capital (referring to his partners, Icahn Enterprises unitholders). We’re able to take advantage of opportunities in undervalued companies that others can’t do.”
Actually, others can take advantage of these opportunities by investing with Carl Icahn in Icahn Enterprises LP.


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