Charles and David Koch showed up on the list of top 400 highest income earners. According to data from ProPublica from 2013 to 2018 Charles Koch earned an average of $213 million per year. His brother David Koch earned on average $234 million per year. It is interesting to point out that Charles was the 153rd highest earning individual in the United States and his brother David was 136th even though they had the same ownership percentage within Koch Industries. There are a couple of reasons why this could be true. The first is David Koch owned many different homes all over the United States and a sale of one of these homes could have increased his adjusted gross income (AGI)-this is the metric that ProPublica used for income. Another potential difference would have been if David Koch's tax and financial advisors sold any other assets (stock/bonds/etc.) during this time period that his brother Charles Koch didn't sell.
Evaluating these numbers and comparing them to what I previously have estimated is a useful and entertaining exercise (I am curious how close I am). My first dividend estimate back in 2015 suggested that David and Charles Koch were each earned around $200 million per year. My estimates have varied over time given new information that was presented. My last estimate for Koch Industries dividends was that Charles and David Koch each earned around $800 million in dividends however I believe this figure is grossly overstated. The biggest reason for this is the assumed rate of return that Koch Industries earns on their revenues. Steve Feilmeier in this YouTube video stated when Koch Industries evaluated $40 billion of investments over many years the average return was 12-13%. Daniel Fisher for Forbes back in 2012 estimated that Koch Industries earned a 10% pre-tax profit margin. However, this figure seems to be high for a number of reasons. The first is if you look back at publicly available data Koch Industries has historically had a low profit margin. Koch Industries is a large conglomerate of various different companies and no longer just in the oil and gas industry.
In 1961 Koch Industries generated $3.5 million in profit. Although an exact figure for the revenue of 1961 can't be found the 1960 revenue for Koch Industries was $70 million. This would say the profit margin in the early 1960's for Koch Industries was roughly 5%.
Back in July 1974 when Forbes did a profile of Charles Koch and Koch Industries the reporter had had Charles Koch if their profits were $100 million and Charles responded to the reporter as a typical engineer would that "You're not off by a whole order of magnitude". According to the Forbes article, in 1974 Koch Industries had revenue of roughly $2 billion which would put their profit margin at 5%.
In the 1980's Koch Industries continued to have a low profit margin. Beginning in 1980 Koch Industries. In 1982 Koch reported $565 million of pre-tax earnings on roughly $17 billion of sales. The next year the company reported $467 million of pre-tax earnings on $15.6 billion of revenue. In 1988 the company reported a profit of $400 million on $16 billion of revenue. This would say even though the 1980's was a decade of greed Koch Industries on average only had a profit margin of roughly 3%. What is even more interesting is how Koch Industries nearly ended the decade with less profit then at the beginning of the decade.
In 1994 the Dallas Morning News had estimated that Koch Industries made $308 million in profit on $23.7 billion of revenue. This would say Koch Industries had a profit margin of 1%. In the mid to late 1990's Koch Industries got into trouble investing in projects that ultimately didn't turn out well. Koch in the 1990's was spending plenty of money on Purina Mills and ultimately lost $120 million on it. Charles Koch in this video explains the failures during that time
Using a lower profit margin for Koch Industries of around 5% changes the numbers for how much Koch Industries pays out in dividends. In 2015 (I took the midpoint for the ProPublica estimate) Forbes estimates Koch Industries had $115 billion of revenue. If you take $115 billion revenue x 5% profit margin would say the Koch generates $5.75 billion in profit. Assuming Koch Industries pays 20% for corporate income taxes would say Koch has $4.6 billion of after tax cash available. Koch historically reinvests 90% of their profits back into the company which would say that the company reinvests $4.1 billion back into the company leaving $460 million left over to distribute to shareholders. Since Charles Koch owns 42% of the company it would say that roughly $193 million of Koch Industries dividends would be paid out. David Koch's family would also receive the same amount $193 million) given similar ownership interest. These numbers are also similar to what was reported on the tax return for both Charles and David Koch. Also there may be other income for Charles and David Koch (dividends from stocks/bonds/other investments) that would push up their income.
The bottom line is Koch Industries is large company with a possibly low profit margin. However, the fact that the company has reinvested 90% of their earnings back into the company has help the company growth dramatically. According to Sons of Wichita the company in 1967 paid out $300,000 in dividends to shareholders. Using the updated figures I would estimate that Koch Industries Inc. paid out $500 million in dividends (based on $125 billion of revenue). This would say over a 56 year period Koch Industries has increased their dividends by 14% per year. Actually this figure seems reasonable given the company has historically grown 12% per year. The story of Koch Industries and it's magnificent growth given their unusual policy of plowing 90% of their earnings back into the company every year.
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