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As NAV Dwindles, Should Icahn Enterprises Slash Its Dividend?

August 22, 2016 6:30 am
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Carl Icahn is having yet another rough year so far in 2016. Shares of Icahn Enterprises LP (NASDAQ: IEP) are down 14.5 percent in 2016 while the S&P 500 is up more than 7 percent.

This is the third consecutive year that Icahn’s company has underperformed the market. Icahn Enterprises stock is down 53.7 percent since the beginning of 2014. In that same time, the SPDR S&P 500 ETF Trust (NYSE: SPY) is up 19.3 percent.

It’s certainly no coincidence that Icahn’s fund and the S&P 500 are moving in opposite directions this year. Earlier in 2016, Icahn disclosed a net 149 percent short position in the market. Even some of Icahn’s largest long positions are struggling. Xerox Corp (NYSE: XRX) is down 8.9 percent in 2016. Despite large rallies off of their 2016 lows, both Chesapeake Energy Corporation (NYSE: CHK) and Freeport-McMoRan Inc (NYSE: FCX) are still trading near their 2015 lows.

Icahn’s investors certainly have had a lot of patience in the past several years, but they have also been paid a tidy sum to wait. Icahn Enterprises currently pays a 11.5 percent dividend.

UBS recently downgraded the stock to Sell with a price target of $30. That price is very close to the stock’s NAV, which would seem to suggest that the company’s generous dividend may be in serious risk.

Related Link: Is Carl Icahn Better At Predicting Politics Than Markets?

Back in 2013, PreMarket Prep’s Joel Elconin suggested that Icahn’s followers may have gotten a bit carried away in driving the share price up to $149.

“IEP should be awarded some sort of premium because of Icahn’s stellar [long-term] performance, but paying double the NAV for any issue seems a bit ridiculous,” Elconin noted.

If UBS is correct, the stock still has significant downside risk. And even if it stays near its current level, its hard to justify a nearly 12 percent dividend.

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