Icahn Enterprises’ dividend yield is now above 20%. Is this stock a dividend investor’s dream?

Icahn Enterprises (IEP -1.02%) has been a dividend investor’s dream. While the exact payout has fluctuated, the company has paid out a steady stream of cash to shareholders since 2005. Right now, the dividend yield is nearly 24%, causing many investors to take note.

But can the company really afford to support a dividend yield of more than 20% in 2024?

Will Icahn Enterprises really pay a 20% dividend this year?

Icahn Enterprises is controlled by legendary investor Carl Icahn. While his investing style can be volatile, he’s undeniably one of the best to ever do it. Since 2000, for example, Icahn Enterprises stock has nearly matched the performance of Warren Buffett’s Berkshire Hathaway. That’s even considering the fact that Icahn Enterprises stock has lost 55% of its value since the start of 2023.

Carl Icahn is to Icahn Enterprises what Warren Buffett is to Berkshire Hathaway. That is, Icahn invests the firm’s money in a variety of business ventures. For decades, instead of retaining all of the profits, he has opted to return capital to shareholders in the form of a quarterly dividend. From 2019 to the middle of 2023, the dividend was $2 per share. It has since been reduced to $1 per share.

If the current dividend policy is retained, Icahn Enterprises will pay out $4 per share in dividends this year. That would cost the company around $1.8 billion based on its current share count.

Will Icahn Enterprises actually follow through on these dividend payments? It’s not certain that it can. Note that the company’s total market cap is only $7.5 billion. That’s higher than its net asset value of just $5 billion. The firm does have roughly $2.5 billion in cash on hand, plus another $2.5 billion in restricted cash, so the dividend is still technically viable. But beyond 2024, the company will have a difficult time maintaining the current dividend, barring a sudden increase in the value of its investments.

Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.

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