In many blog posts in the past I have tried to calculate the dividend, profit margin, and the historical net worth of Charles and David Koch. Recently Koch CFO Steve Feilmeier in an Q&A session (I blogged about the Q&A session here) with Startup Wichita Local stated that Koch has earned about a 13-14% return over time (the company targets to earn a 12-18% return on projects it invests in). Typically large companies have hundreds of possible of projects but allocate so much money to the projects they feel will earn the highest return). My previous analysis has pegged the return of Koch Industries return between 5%-13%. Clearly this higher return assumption would change the amount of dividends, reinvestment, and net worth for Koch Industries in their shareholders.
Historical analysis would show that the Koch Industries had a low profit. The Koch vs. Koch trial showed that in 1982 Koch had revenues of almost $17 billion and had pre-tax earnings of $564.7 million which would say that before tax earnings was 3%. However, these days Koch Industries is more than just oil and gas. The company has invested heavily in technology companies (with Koch Disruptive Technologies), has their own equity development arm (Koch Equity Development, and is much more diversified (and higher return) than in the past.
So if we run the math if Koch now has revenues of $130 billion and they earn a 13% return it would say their annual earnings are $17 billion per year. $17 billion is of course before Koch pays any taxes. If you you assume a 24% tax rate (which is the average for S&P 500 companies). After-tax earnings of Koch would be roughly $12.8 billion. The company reinvests 90% of their earnings back into the company which would say on average $11.5 billion per year is plowed back into Koch Industries. Koch Industries for the past 55 years (according to Steve) has reinvested 90% of their earnings back into the company. This would say that about $900 million is left over to pay dividends to all Koch shareholders. Historically, the company has paid 7% of the earnings to shareholders. Charles and David Koch each own a 42% interest in Koch Industries (although Chase Koch has mentioned he is a shareholder in this Startup Local Wichita Q&A). If we take the after-tax earnings of the company ($12.8 billion) x 7% payout of earnings x a 42% ownership interest it would say that Charles and David Koch each pull in roughly $378 million in dividends alone. If the Marshall family owns the other 16% of Koch Industries it would say they pull in a little over $140 million dividends per year.
Another interesting thing Steve brought up in his Q&A was when Charles inherited Koch Industries the company had a net worth of $12 million and grew it by 7500 times. This would say that Koch Industries is worth $90 billion and Charles Koch would be worth close to $38 billion (and not the $55 billion that currently Forbes has-Bloomberg is closer at $44 billion. The Marshall family would have an estimated net worth of around $13 billion. Historically the net worth of Koch Industries has grown dramatically as Charles Koch has plowed so much back into the company. The net worth of Koch Industries in 1982 was $1.5 billion . Before the Koch lawsuit shareholders Charles, David, and Bill Koch each owned a 20.7% interest (oldest brother Frederick Koch owned a 13.7%) interest. This would say in the early 1980's Charles, David, and Bill had a net worth over $300 million (Frederick would have a net worth of a little over $200 million). To grow their net worth from $300 million to $38 billion in a little over 30 years is quite dramatic.
When you look at the dividend yield on Koch Industries it is quite paltry compared to large companies. If Charles and David earn $377 million in dividends per year and their net worth is each $38 billion would say the yield of Koch Industries stock is around 1%. The average yield of a company in the S&P is currently near 1.92%. Another way to look at this is to say if Charles and Koch sold their stock they could generate almost double the dividends then Koch Industries stock is paying! Koch however has had a policy of reinvesting 90% of their earnings back into the company which has led to dividend growing dramatically over time. When Fred Koch passed away in 1967 the company paid out dividends of $300,000 (according to Sons of Wichita). If the total dividends of the company are roughly $900 million this would say the annual increase of dividends has been a staggering 21%/year.
The interview with Steve Feilmeier cleared up some of the issues I had been trying to calculate (again these are strictly estimates since Koch Industries is not a public company and doesn't have to disclose any of this information) for a couple of years in terms of how much Koch Industries throw off in dividends, the net worth of Charles and David Koch, and the Marshall family. It shows that Koch is quite a disciplined company and by earning a 13-14% annual return has not only earned a good return but helped fuel the growth of not only the net worth but the dividends of shareholders of Koch Industries.
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