These Shares Yield 8% and Let You Invest With Carl Icahn

When Carl Icahn speaks, people listen.

In March, the legendary investor disclosed that he had bought a 52% ownership stake in a small digital marketing firm called Voltari (Nasdaq: VLTC) to his legion of 250,000 Twitter followers. One month later, the stock had already surged more than 800%.

Granted, that is an extreme example. But you can understand why investors were quick to bid shares of the little-known company up so quickly. Icahn is the world’s 31st richest individual, with a net worth estimated at $21 billion.

[ad#Google Adsense 336×280-IA]That personal wealth didn’t come from oil or computers or shipping. It came from activist investing.

The guy just made $2 billion on Netflix (Nasdaq: NFLX) alone, with the video streaming company’s shares soaring 12-fold during his ownership tenure.

Icahn’s moves have greatly enriched his investors as well.

With annualized returns of 17.4% since 2000, his fund has racked up a cumulative gain of 1,339% — crushing the Dow Jones Industrial Average, the S&P 500, the Nasdaq Composite, and even the legendary Warren Buffett.

You can invest alongside Icahn through Icahn Enterprises (NYSE: IEP) a holding company with ownership stakes in a diverse array of industries, including automotive, energy, metals and gaming. The business was initially created as a real estate investment vehicle, but has since expanded into nine operating segments representing $37 billion in assets.

Icahn Enterprises is also a direct conduit into the hedge fund managed by its namesake founder (who owns 88% of the outstanding shares). IEP acquired Icahn Capital Management in 2007 and today has more than $4.5 billion invested in its funds.

Investing in IEP doesn’t involve an optimistic outlook for a certain industry, but rather allegiance to Carl Icahn and his ability to keep doing what he’s done for the past 35 years — target under priced businesses and effect positive change.

When Icahn invests in a company, he doesn’t sit and wait for a catalyst to boost the share price. He creates his own. That could mean persuading a company to undertake bold strategic initiatives, or even restructure entirely. It may seem cruel to unseat managers or replace board members, but sometimes that’s what it takes to produce results and get a stock moving forward.

These opportunities aren’t growing thin. In fact, Icahn believes that he has “never seen a time for activism better than it is today.”

American companies are sitting on a mountain of cash (over $1.4 trillion) earning meager returns, and borrowing costs are attractive thanks to historically low interest rates. This is a ripe environment to make accretive, profit-boosting acquisitions. But many CEOs are reluctant because these transactions often mean a loss of control and perks.

I am confident Icahn’s fiery brand of shareholder activism will continue to produce market-beating returns for investors — both large and small.

Get The Kind Of Returns You’d Expect From A Living Legend
Any discussion of IEP’s performance must begin with the firm’s investment results, which have been nothing short of outstanding.

Icahn’s hedge funds produced a return of 33.3% in 2009, followed by gains of 15.2%, 34.5%, 20.2% and 30.8% over the next four years. The funds had an uncharacteristic off year in 2014, dropping 7.4%, but have still delivered a market-crushing total return of 245% since inception in November 2004.

But that’s only part of this multi-faceted business.

The company has control over CVR Energy (NYSE: CVI), whose refineries and crop fertilizer operations churned out $415 million in cash flows attributable to IEP last year. The list also includes automotive parts supplier Federal Mogul (Nasdaq: FDML), which chipped in $497 million.

One of the crown jewels is American Railcar Industries (Nasdaq: ARII). The company is receiving orders to manufacture new tank cars faster than it can fill them, resulting in an order backlog of 10,471 cars. Meanwhile, its leasing fleet (which generates steady rental income) has grown to 41,600 cars today from 39,700 cars at the end of 2014.

On the downside, the firm’s metals business is suffering from macro headwinds and currently running at a net loss. And the vicious oil and gas selloff has also been problematic for some holdings.

But this is a temporary downturn. Global energy demand is growing stronger, not weaker. And these holdings are counterbalanced by many others that have performed well, like Apple (Nasdaq: AAPL). Icahn Enterprises owns 53 million shares of the device maker — a stake that has blossomed in value to $6.6 billion.

In any case, money managers are best judged on long-term track record. And on that basis, few people on the planet have made more money for their investors than Carl Icahn — IEP shareholders have enjoyed a gain of more than 300% since the economic recovery in April 2009 and 1,339% since January 2000.

Lock In A 8.5% Yield And Prepare For The Rebound
Icahn Enterprises collects millions in quarterly dividends that flow in from subsidiaries, which in turn are remitted to IEP stockholders. The company is structured as a tax-advantaged master limited partnership (MLP), which helps maximize payouts.

Citing its healthy balance sheet and strong cash flow generation, the board raised the annual distribution to $5.00 per unit in 2013 and then to $6.00 per unit this past March. At current prices, the stock offers a rich yield of 8.5%.

The downturn in energy stocks has weighed on IEP. After touching a peak of $113 last August, the stock now sits at around $71.

That pullback has left shares trading at just 1.8 times book value, well below the S&P 500 average of 2.8. It has also more than doubled IEP’s normal historical dividend yield of 3.4% to the current payout of 8.5%.

I think weakness in certain holdings is fully reflected in the share price at this point, and this could be an opportune time to invest alongside one of the greatest investors of the modern era and lock in a solid yield above 8%.

— Nathan Slaughter

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Source: Street Authority