Pay No Taxes While Getting a 20.57% Dividend Yield

Icahn Enterprises L.P. (NASDAQ: IEP) is a Master Limited Partnership (MLP). The firm is invested in various industries including energy, automotive, food packaging, metals, real estate, and home fashion.

How Does IEP Function to Pass Through Taxes?

Icahn Enterprises L.P. possesses huge assets and investments in different sectors and companies. The MLP companies like the IEP transfer their profits and expenses to investors and are exempt from paying corporate income taxes. As a result, the investors receive significant cash flow annually.

The attractive dividend themes in the MLPs set the bar with an average annual yield of 9.1%. This investment offers a return that is more than twice what equity REITs pay and more than four times the dividend on the overall S&P 500. In the case of IEP, this number is 20.5% which is more than twice the MLP industry standard.

How to Pay 0 Taxes While Investing in IEP?

A particular loophole in the tax code allows investors to receive almost all of the dividends completely tax-free. MLP will report the investor’s share of the business with the income minus expenses. It will then deduct the depreciation and add those dividends.

The beauty of this is that the dividends that investors receive throughout the year aren’t all taxed. Only part of those dividends are going to show up on that box labelled ordinary or qualified dividends that the IRS will take on.

The other part of these dividends that the investor will receive will be somewhere near 90% of the actual income, so the vast majority of those is counted as a ‘return of capital. The IRS considers this a payback of an individual’s investment in the company instead of cash flow.

This filters it out from getting taxed by the IRS, and the investor can receive this amount as a post-tax. As an investor in an MLP, an individual will receive a k1 form every year, indicating all pass-through income and expenses in the partnership.

Recent Quarter Performance of Icahn Enterprises L.P.

For the period between July 1 and September 30, 2023, the company generated $3.0 Billion in revenues and suffered a net loss of $6 Million. However, these MLPs show a huge amount of accumulated depreciation, which is a noncash expense to lower their profit before tax.

The key point here is that depreciation is a non-cash expense, which means that the company doesn’t have to pay anything out of it. Therefore, a better metric to see the company’s performance is adjusted EBITDA, which for the same period was $272 Million.

Technical Analysis and Prediction of the IEP Stock Price

IEP stock price is currently trading at $19.45 followed by a downtrend. The current support level for the bulls is at $19.60 while the 2nd support is at $10.27. Similarly, the immediate resistance is at $34.02 while the 2nd resistance is at $47.11.

Conclusion

IEP is a tax-exempt Master Limited Partnership that invests in various industries. With an annual yield of 20.57%, investors receive attractive dividends that are almost completely tax-free due to a loophole in the tax code. The company reported a positive adjusted EBITDA. Currently, IEP stock is trading at $19.45, with a downtrend.

Technical Levels

Support Levels: $19.60 and $10.27
Resistance Levels: $34.02 and $47.11

Disclaimer

The views and opinions stated by the author, or any people named in this article, are for informational purposes only. They do not establish financial, investment, or other advice. Investing in or trading in stocks or related indexes comes with a risk of financial loss.