5 Hold-Rated Dividend Stocks

Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model.

TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to perform against a general benchmark of the equities market and interest rates.

While plenty of high-yield opportunities exist, investors must always consider the safety of their dividend and the total return potential of their investment. It is not uncommon for a struggling company to suspend high-yielding dividends and subsequently result in precipitous share price declines.

TheStreet Ratings' stock rating model views dividends favorably, but not so much that other factors are disregarded. Our model gauges the relationship between risk and reward in several ways, including: the pricing drawdown as compared to potential profit volatility, i.e. how much one is willing to risk in order to earn profits?; the level of acceptable volatility for highly performing stocks; the current valuation as compared to projected earnings growth; and the financial strength of the underlying company as compared to its stock's valuation as compared to its stock's performance.

These and many more derived observations are then combined, ranked, weighted, and scenario-tested to create a more complete analysis. The result is a systematic and disciplined method of selecting stocks. As always, stock ratings should not be treated as gospel — rather, use them as a starting point for your own research.

The following pages contain our analysis of 5 stocks with substantial yields, that ultimately, we have rated "Hold."

KKR Financial Holdings

Dividend Yield: 7.50%

KKR Financial Holdings (NYSE: KFN) shares currently have a dividend yield of 7.50%.

KKR Financial Holdings LLC, together with its subsidiaries, operates as a specialty finance company with expertise in a range of asset classes. The company has a P/E ratio of 5.96. Currently there are 2 analysts that rate KKR Financial Holdings a buy, no analysts rate it a sell, and 1 rates it a hold.

The average volume for KKR Financial Holdings has been 1,192,000 shares per day over the past 30 days. KKR Financial Holdings has a market cap of $2.3 billion and is part of the real estate industry. Shares are up 5.3% year to date as of the close of trading on Wednesday.

TheStreet Ratings rates KKR Financial Holdings as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins and solid stock price performance. However, as a counter to these strengths, we also find weaknesses including generally higher debt management risk, weak operating cash flow and feeble growth in the company's earnings per share.

Highlights from the ratings report include:
  • KFN's revenue growth has slightly outpaced the industry average of 7.0%. Since the same quarter one year prior, revenues rose by 11.0%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • The gross profit margin for KKR FINANCIAL HOLDINGS LLC is currently very high, coming in at 77.00%. Regardless of KFN's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, KFN's net profit margin of 45.15% significantly outperformed against the industry.
  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period, despite the company's weak earnings results. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
  • Net operating cash flow has decreased to $48.92 million or 19.30% when compared to the same quarter last year. Despite a decrease in cash flow of 19.30%, KKR FINANCIAL HOLDINGS LLC is still significantly exceeding the industry average of -111.82%.
  • The debt-to-equity ratio is very high at 3.45 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company.

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R.R. Donnelley & Sons Company

Dividend Yield: 8.80%

R.R. Donnelley & Sons Company (NASDAQ: RRD) shares currently have a dividend yield of 8.80%.

R.R. Donnelley & Sons Company provides integrated communication solutions to private and public sectors worldwide. Currently there are 2 analysts that rate R.R. Donnelley & Sons Company a buy, no analysts rate it a sell, and 1 rates it a hold.

The average volume for R.R. Donnelley & Sons Company has been 2,648,400 shares per day over the past 30 days. R.R. Donnelley & Sons Company has a market cap of $2.1 billion and is part of the diversified services industry. Shares are up 30.6% year to date as of the close of trading on Wednesday.

TheStreet Ratings rates R.R. Donnelley & Sons Company as a hold. Among the primary strengths of the company is its generally strong cash flow from operations. At the same time, however, we also find weaknesses including deteriorating net income, disappointing return on equity and poor profit margins.

Highlights from the ratings report include:
  • Net operating cash flow has increased to $522.50 million or 10.11% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -19.60%.
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 9.8%. Since the same quarter one year prior, revenues slightly dropped by 2.2%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • DONNELLEY (R R) & SONS CO has exprienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, DONNELLEY (R R) & SONS CO reported poor results of -$3.61 versus -$0.73 in the prior year. This year, the market expects an improvement in earnings ($1.57 versus -$3.61).
  • The gross profit margin for DONNELLEY (R R) & SONS CO is rather low; currently it is at 22.00%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -31.92% is significantly below that of the industry average.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Commercial Services & Supplies industry. The net income has significantly decreased by 159.9% when compared to the same quarter one year ago, falling from -$326.70 million to -$849.00 million.

New From TheStreet: Jim Cramer's Protégé, Dave Peltier, only buys dividend stocks that have the potential for a 3% to 4% yield and 10% growth. Get his best picks for less than $50/year.

Penn West Petroleum

Dividend Yield: 10.10%

Penn West Petroleum (NYSE: PWE) shares currently have a dividend yield of 10.10%.

Penn West Petroleum Ltd., an exploration and production company, engages in acquiring, exploring, developing, exploiting, and holding interests in petroleum and natural gas properties and related assets in western Canada. The company has a P/E ratio of 28.19. Currently there are no analysts that rate Penn West Petroleum a buy, 2 analysts rate it a sell, and 4 rate it a hold.

The average volume for Penn West Petroleum has been 1,984,500 shares per day over the past 30 days. Penn West Petroleum has a market cap of $5.0 billion and is part of the energy industry. Shares are down 6.7% year to date as of the close of trading on Wednesday.

TheStreet Ratings rates Penn West Petroleum as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, increase in net income and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, disappointing return on equity and poor profit margins.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 1.7%. Since the same quarter one year prior, revenues rose by 21.6%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Oil, Gas & Consumable Fuels industry average. The net income increased by 14.5% when compared to the same quarter one year prior, going from -$62.00 million to -$53.00 million.
  • The current debt-to-equity ratio, 0.30, is low and is below the industry average, implying that there has been successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.40 is very weak and demonstrates a lack of ability to pay short-term obligations.
  • The gross profit margin for PENN WEST PETROLEUM LTD is rather low; currently it is at 22.60%. It has decreased significantly from the same period last year. Along with this, the net profit margin of -7.96% is significantly below that of the industry average.
  • Net operating cash flow has declined marginally to $441.00 million or 8.88% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.

New From TheStreet: Jim Cramer's Protégé, Dave Peltier, only buys dividend stocks that have the potential for a 3% to 4% yield and 10% growth. Get his best picks for less than $50/year.

Exelon

Dividend Yield: 6.10%

Exelon (NYSE: EXC) shares currently have a dividend yield of 6.10%.

Exelon Corporation, a utility services holding company, engages in the energy generation and distribution business in the United States. The company has a P/E ratio of 24.43. Currently there are 3 analysts that rate Exelon a buy, no analysts rate it a sell, and 14 rate it a hold.

The average volume for Exelon has been 7,277,000 shares per day over the past 30 days. Exelon has a market cap of $29.7 billion and is part of the utilities industry. Shares are up 16% year to date as of the close of trading on Wednesday.

TheStreet Ratings rates Exelon as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and poor profit margins.

Highlights from the ratings report include:
  • The revenue growth greatly exceeded the industry average of 13.3%. Since the same quarter one year prior, revenues rose by 44.2%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • The debt-to-equity ratio is somewhat low, currently at 0.90, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Despite the fact that EXC's debt-to-equity ratio is low, the quick ratio, which is currently 0.57, displays a potential problem in covering short-term cash needs.
  • EXELON CORP has exprienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, EXELON CORP reported lower earnings of $1.40 versus $3.75 in the prior year. This year, the market expects an improvement in earnings ($2.49 versus $1.40).
  • The gross profit margin for EXELON CORP is rather low; currently it is at 20.80%. It has decreased significantly from the same period last year. Along with this, the net profit margin of 6.01% trails that of the industry average.
  • Net operating cash flow has decreased to $1,574.00 million or 18.69% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.

New From TheStreet: Jim Cramer's Protégé, Dave Peltier, only buys dividend stocks that have the potential for a 3% to 4% yield and 10% growth. Get his best picks for less than $50/year.

Bank of Montreal

Dividend Yield: 4.60%

Bank of Montreal (NYSE: BMO) shares currently have a dividend yield of 4.60%.

Bank of Montreal, together with its subsidiaries, provides various retail banking, wealth management, and investment banking products and services in North America and internationally. The company has a P/E ratio of 10.45. Currently there is 1 analyst that rates Bank of Montreal a buy, 2 analysts rate it a sell, and 4 rate it a hold.

The average volume for Bank of Montreal has been 442,700 shares per day over the past 30 days. Bank of Montreal has a market cap of $41.4 billion and is part of the banking industry. Shares are up 2.1% year to date as of the close of trading on Wednesday.

TheStreet Ratings rates Bank of Montreal as a hold. The company's strengths can be seen in multiple areas, such as its notable return on equity, increase in stock price during the past year and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income and weak operating cash flow.

Highlights from the ratings report include:
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Commercial Banks industry and the overall market, BANK OF MONTREAL's return on equity exceeds that of both the industry average and the S&P 500.
  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
  • The gross profit margin for BANK OF MONTREAL is currently very high, coming in at 83.90%. Regardless of BMO's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, BMO's net profit margin of 19.64% compares favorably to the industry average.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed compared to the Commercial Banks industry average, but is greater than that of the S&P 500. The net income has decreased by 5.5% when compared to the same quarter one year ago, dropping from $1,090.00 million to $1,030.00 million.
  • Net operating cash flow has significantly decreased to $10,656.00 million or 55.67% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.

New From TheStreet: Jim Cramer's Protégé, Dave Peltier, only buys dividend stocks that have the potential for a 3% to 4% yield and 10% growth. Get his best picks for less than $50/year.

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Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model.
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