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 3 stocks with substantial yields, that ultimately, we have rated "Hold." KKR Financial Holdings (NYSE: KFN) shares currently have a dividend yield of 8.00%. 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 5.64. The average volume for KKR Financial Holdings has been 836,900 shares per day over the past 30 days. KKR Financial Holdings has a market cap of $2.1 billion and is part of the real estate industry. Shares are down 2% 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 increase in stock price during the past year. However, as a counter to these strengths, we also find weaknesses including generally higher debt management risk and disappointing return on equity. Highlights from the ratings report include:
- Despite its growing revenue, the company underperformed as compared with the industry average of 9.2%. Since the same quarter one year prior, revenues slightly increased by 4.3%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
- The gross profit margin for KKR FINANCIAL HOLDINGS LLC is currently very high, coming in at 80.41%. 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 51.39% significantly outperformed against the industry.
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500, but is less than that of the Diversified Financial Services industry average. The net income increased by 21.0% when compared to the same quarter one year prior, going from $71.21 million to $86.13 million.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Diversified Financial Services industry and the overall market on the basis of return on equity, KKR FINANCIAL HOLDINGS LLC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
- The debt-to-equity ratio is very high at 2.41 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.
- GOOD's revenue growth has slightly outpaced the industry average of 10.6%. Since the same quarter one year prior, revenues rose by 14.9%. 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.
- 48.32% is the gross profit margin for GLADSTONE COMMERCIAL CORP which we consider to be strong. Regardless of GOOD's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, GOOD's net profit margin of 3.15% is significantly lower than the industry average.
- In its most recent trading session, GOOD has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. Looking ahead, our view is that this company's fundamentals will not have much impact in either direction, allowing the stock to generally move up or down based on the push and pull of the broad market.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, GLADSTONE COMMERCIAL CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has decreased to $4.49 million or 12.74% 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.
- You can view the full Gladstone Commercial Corporation Ratings Report.
- SJT has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign.
- The gross profit margin for SAN JUAN BASIN ROYALTY TR is currently very high, coming in at 100.00%. SJT has managed to maintain the strong profit margin since the same quarter of last year. Despite the mixed results of the gross profit margin, SJT's net profit margin of 92.48% significantly outperformed against the industry.
- SJT, with its very weak revenue results, has greatly underperformed against the industry average of 10.1%. Since the same quarter one year prior, revenues plummeted by 75.3%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- 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 Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 76.8% when compared to the same quarter one year ago, falling from $14.63 million to $3.40 million.
- You can view the full San Juan Basin Royalty Ratings Report.
- Our dividend calendar.