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 (NYSE: KFN) shares currently have a dividend yield of 7.80%. 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 5.82. The average volume for KKR Financial Holdings has been 759,600 shares per day over the past 30 days. KKR Financial Holdings has a market cap of $2.2 billion and is part of the real estate industry. Shares are up 1.1% year to date as of the close of trading on Thursday. TheStreet Ratings rates KKR Financial Holdings as a hold. The company's strengths can be seen in multiple areas, such as its robust 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 and weak operating cash flow. Highlights from the ratings report include:
- KFN's revenue growth has slightly outpaced the industry average of 14.7%. Since the same quarter one year prior, revenues rose by 17.2%. 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 gross profit margin for KKR FINANCIAL HOLDINGS LLC is currently very high, coming in at 77.40%. It has increased significantly from the same period last year. Along with this, the net profit margin of 40.33% significantly outperformed against the industry average.
- KFN's share price has surged by 25.30% over the past year, reflecting the market's general trend, despite their weak earnings growth during the last quarter. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
- Net operating cash flow has decreased to $39.68 million or 11.26% when compared to the same quarter last year. Despite a decrease in cash flow of 11.26%, KKR FINANCIAL HOLDINGS LLC is still significantly exceeding the industry average of -99.86%.
- The debt-to-equity ratio is very high at 2.43 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company.
- You can view the full KKR Financial Holdings Ratings Report.