Georgia Pacific Dividends and Update to Koch Industries Shareholders Dividend

On my blog over the years I have written many articles regarding the dividend policy of Koch Industries (the only blog on the internet to cover this!). I started writing about the Koch Industries dividends here, wrote about their dividend policy compared to other S&P 500 companies here, and even wrote here about how former Koch shareholders Bill and Frederick Koch walked away from hundreds of millions of dollars in dividends by selling their shares back in the 1980's. In addition to this I have covered Georgia Pacific in depth and even did a case study on Georgia Pacific here. To me the most interesting thing about Koch Industries is that the company continue to reinvests 90% of their profit back into the company. So although the company doesn't pay a large dividend the sheer fact that the company continues to reinvest their dividend has substantially increased the dividend paid out to Koch Industries shareholders over the years. 

Recently an article by Bloomberg Law/Reuters mentioned that Koch Industries received $2.5 billion of dividend payments from Georgia Pacific ($2 billion of this was a special dividend). In 2004 when Koch Industries was looking to purchase just the non consumer products business from Georgia Pacific. Charles Koch explains in this Uncommon Knowledge video with Peter Robinson that Koch Industries wanted Georgia Pacific to divide up their company so Koch Industries could only purchase the non consumer products business however the issue was Georgia Pacific had asbestos liabilities and Koch Industries couldn't only purchase just a portion of the asset base of Georgia Pacific since that would be considered fraudulent transfer. The only option was Koch Industries would have to purchase all of Georgia Pacific and incur the asbestos liabilities. As of 2017 there were still over 64,000 lawsuits despite Bestwall paying out $2.8 billion claims. Bestwall was spending $40 million in just defense fees in 2017 alone and the average payout to claimants increased from $21,000 to $121,000. Due to the increasing costs Koch Industries put the Bestwall unit into Chapter 11 bankruptcy. Koch was able to transfer the asbestos liabilities to BestWall and then transfer the assets to New Georgia Pacific (a newly created entity). So even though Charles Koch was concerned about fraudulent transfer before acquiring Georgia Pacific it looks like Koch Industries was able to get around it with some creative legal maneuvers and legal planning. 

The New Georgia Pacific paid $481 million in total dividends (paid quarterly) to parent company Koch Industries. In addition to this The New Georgia Pacific also paid a special $2 billion dividend as well to Koch Industries. For a moment I will ignore the $2 billion special dividend as this is a one time dividend. Bloomberg Billionaires Index estimate that Charles Koch (who owns 42% of Koch Industries) is worth $68.6 billion as I write this. Bloomberg estimates that of that the portion of Georgia Pacific that Charles Koch owns (again a 42% interest) is worth $18.2 billion. Bloomberg estimates that the total revenue of Georgia Pacific is roughly $21 billion. So if a 42% interest interest in Georgia Pacific is worth $18.2 billion this would say the whole company is worth roughly $43 billion. Also said another way Georgia Pacific would constitute 26% of Koch Industries. So if the Georgia Pacific paid out only $481 million dividends (again excluding the special dividend) and this represents 26% of the Koch Industries one estimate of how much Koch Industries pays out in dividends is $1.9 billion. As an actual dividend yield for Georgia Pacific the dividend is quite low of only 1% (the average dividend payout as I write this is 1.72%). 

The method I have calculated Koch Industries dividends is to base it off the revenue of Koch Industries. Koch Chief Financial Officer (CFO) Richard Dinkel said Koch Industries had $125 billion of revenue in 2021 and on the Koch Equity Development website recently they also reported $125 billion of revenue (with $150 billion of investments since 2003). This would say on average the earnings of Koch Industries is about $9 billion per year. I estimated that Koch Industries earns a 14% return (this figure was from an executive at Koch Industries). So if you take $125 billion of revenue x 14% is about $18 billion of earnings (this is before any tax though). If you assume a 20% corporate tax rate based (based on data from Ed Yardeni) would say that Koch Industries has $14 billion to distribute to shareholders. According to Bill Koch about 7% of the earnings of Koch are paid out as dividends. This would say about $1 billion is paid out as dividends (the estimate of $1.9 billion is close on relative basis even Koch has $125 billion revenue! 

If based off the new information from the New Georgia Pacific dividends paid out to Koch Industries and Koch does pay out $1.9 billion in dividends per year it would say that $800 million is paid out to Charles Koch and his family (Chase Koch has mentioned he is a Koch Industries shareholder as I mentioned in this post) and $800 million is paid out to Julia Koch and her family. Although Julia Koch has never worked for Koch Industries she does serve on the board of directors of the company. The other 16% of Koch Industries is owned by the Marshall family. This estimate would say the Marshall family earns $300 million in dividends from Koch Industries stock. In 1995 J Howard Marshall was earning $5 million in just dividends from Koch Industries stock. He was primarily using the dividend income to pay off debt and also support his lifestyle and the ladies in his life (including Anna Nicole Smith). 

It is hard to believe that Koch Industries back in 1967 only paid out $300,000 of dividends and recently estimated to pay out $1.9 billion would represent a 17% per year increase in dividend payments per year over a 55 year period! Koch Industries continually reinvesting 90% of the earnings back into the company has paid off for the shareholders of the company over the long run.