Koch Industries Dividend Analysis: How Much Do Charles and David Koch Earn a Year?

Update: Recently in 2021 I updated this analysis which can be found in this post. 

For a while I have wondered how much Koch Industries pays out in the form of a dividend. I know the company has a history of a low dividend payout as Bill Koch complained in this 1992 Sports Illustrated article that he "had to borrow money to buy a house.. and [he] is one of the wealthiest men in America". Using publicly available data I estimated how much Koch Industries shareholders earn in the form of a dividend.

So there has been no question that Koch Industries has grown dramatically since Charles Koch has taken over. Speaking of Koch Industries growth recently in the Koch Industries newsletter Discovery (archives of the newsletter can be found here) Charles Koch in the last page talks about the growth of Koch Industries over time. Koch Industries has grown 4600 fold since 1961 while the S&P 500 has grown 160 fold over the same period.

Add to this Charles Koch is coming out with a new book on October 13, 2015 called Good Profit: How Creating Value For Others Built One Of  The Most Successful Companies which discusses how "Charles took a company from a $27 million company in 1967 into a company with $110 billion company over many decades". This would say that Koch Industries has increased at a rate of 19%/year since Charles Koch took over which is quite impressive when you consider the stock market over a long period of time has earned roughly 8-9%/year. However, I do remember the current CFO Steve Feilmeier saying in this video that since Charles Koch took over the company has grown about 15% per year. According to this Wichita Eagle article from 1994 (last page) Koch Industries had $177 million in revenue in 1966 (the year before Charles took over). This would say at current revenue Koch Industries has really grown ~15%/year. 

Charles Koch took over Koch Industries after his father Fred Koch passed away in 1967 from heart issues. At the time Koch Industries had some divisions that were barely breaking even. With Charles Koch taking over he grew the company by literally working long hours (according to this Fortune article from 1982 Charles was working 10 hour days) during the week, weekends (he once had a meeting in August 1968 that began at 4 P.M. and ended at midnight) and it was expected that Koch executives were expected to work Saturday and sometimes well into Saturday night-so much for a social life) . What is even more interesting is that Charles Koch is 79 years old and according to this recent article from the Wichita Eagle these days Charles wakes up around 6 A.M. gets to the office by 7 A.M. and then works until 6 P.M. and is in bed by 9 P.M. (brother David Koch told Avenue magazine recently that at the age of 74 he still gets to the office around 9 A.M. and usually leaves by 7 P.M. and 12 hour days are not unusual for him). It is important to keep in mind that many people with this type of money would be on the beach or off vacating somewhere. You can't become a billionaire working 40 hours a week.

All the hard work that David, Charles, and Bill put into Koch Industries during the 1970's and 1980's paid off. In 1979 David and Bill Koch were earning $250,000 working as vice presidents of divisions at Koch Industries. To give you some perspective $250,000 in 1979 dollars would be worth a little over $800,000 in current dollars. In addition to their salary David, Charles, and Bill were earning $3 million a year in dividends (back then-which would today would be $9 million today). In 1978 Bill Koch was earning $1.167 million in salary with $747,000 in dividends. The following year (1979) Bill Koch was earning a salary of $1 million in salary and $1.9 million in dividends. By 1980 Bill Koch was receiving $3.7 million in dividends. Around this time Bill, David, and Charles Koch each owned roughly 20% of Koch Industries stock (Fredrick owned about 14% of the Koch Industries stock, however didn't work at the company). So doing a roughly estimate the total dividends payouts for Koch for 1978, 1979, and 1980 were roughly $3.7 million, $9.5 million, $17.5 million respectively. When Fred Koch passed away in 1967 dividends for all of Koch Industries was $300,000 (according to the book Sons of Wichita) and by the early 1980's was about $28 million. Fredrick Koch complained 1980's here that the dividend that was paying out only 1% (take into account that Fredrick in the early 1980's was earning roughly $4 million didn't even show up to work!

Charles and David Koch however are not the only current shareholders of Koch Industries. Elaine Marshall and the Marshall family own the other roughly 14% of Koch Industries stock. According to This file (a 2007 trust tax return for Elaine Marshall who owns about 15% of Koch Industries stock that she inherited from E. Pierce Marshall-who is the son of J Howard Marshall (the guy who married Anna Nichole Smith) in 2007 had dividends of about $72 million of dividends from various trusts that she had. Koch Industries had $90 billion of revenue in 2006 (according to a book Charles Koch wrote called Market Based Management). What is interesting is that in addition to the dividends are about roughly just $11 million of interest income (so total income received by the Elaine Marshall and family is about $83 million in 2007).The trust earned roughly $413 million between 1996-2006)  Koch Industries regularly reinvests 90% of the earnings back into the company which actually results in a lower short term dividend, however in the long run if you are growing your dividend will also continue to grow.

Daniel Fisher from Forbes estimates that Charles and David Koch could borrow from Koch Industries a $40 billion dividend. Fisher also estimates Koch Industries for 2014 earned roughly $10 billion per year. From 2003-2014 Koch Industries spent $70 billion in capital expenditures and acquisitions. So on an annual basis this is about $5-6 billion per year of re-investing. Since Koch Industries reinvests 90% of their earnings back into the company this would say that Koch earns roughly $6-$7 billion per year. This would say that the annual estimate that the annual earnings is between $6-$10 billion. Of course this amount is before taxes. So take out roughly $3 billion for taxes and it would leave a net profit of about $7 billion.

So assume net profit is about $7 billion and the payout of Koch Industries is about 7% (which matches this article from 1992). Assume 90% of the earnings are reinvested back into the company, 7% of the earnings are paid out as a dividend, and 3% is held for short term liquidity/cash needs. Also assume Elaine Marshall (and the trusts she owns) have continuously held a 15% ownership of Koch Industries stock. This would mean that Elaine Marshall would have about $74 million in dividends (which is very close to her 2007 trust tax estimate showing $72 million of dividends). Charles and David Koch own the other 84% of Koch Industries (assume the other 1% is held by Koch executives/employees).

 If Charles and David Koch each own 42% of the company then if we take $7 billion in net profit x a 7% dividend payout x a 42% ownership interest it could be estimated that Charles and David Koch each pull in about $200 million a year from Koch Industries stock. Forbes has Charles Koch worth $42 billion as of March 2015. According to Bloomberg Billionaires Index Charles Koch is worth roughly about $51 billion (with $1 billion in cash-which would barely cover estate taxes since they are at 40%-Charles would need roughly $20 billion just to cover the estate taxes-I covered Koch estate planning in this post). At any rate if you take $200 million and divide it by say $42 billion that would mean that the dividend yield for Koch Industries is less than .5% which is fairly low compared with other large companies in the S&P 500 (usually these companies have a yield between 2-3%). So in essence Charles and David Koch are trading off a lower dividend payout for higher long-term growth.

This illustrates the result of compound interest. As Koch Industries has grown at roughly 15%/year over a four decade period would mean that every 5 years the company would double in size. Over time this would increase the dividends that are paid out to shareholders. As Koch Industries continues to grow the dividends will grow as well. The billion dollar question is what happens to the ownership of Koch after Charles, David, and Elaine Marshall are no longer around.