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 4 stocks with substantial yields, that ultimately, we have rated "Hold." KKR Financial Holdings (NYSE: KFN) shares currently have a dividend yield of 8.20%. 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 5.52. The average volume for KKR Financial Holdings has been 844,300 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 3.2% 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 revenue growth, increase in stock price during the past year and compelling growth in net income. However, as a counter to these strengths, we find that the company has favored debt over equity in the management of its balance sheet. Highlights from the ratings report include:
- 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.
- Compared to its price level of one year ago, KFN is up 6.99% to its most recent closing price of 10.09. Looking ahead, our view is that this company's fundamentals should 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 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.
- KKR FINANCIAL HOLDINGS LLC reported flat earnings per share in the most recent quarter. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, KKR FINANCIAL HOLDINGS LLC increased its bottom line by earning $1.88 versus $1.75 in the prior year. For the next year, the market is expecting a contraction of 13.8% in earnings ($1.62 versus $1.88).
- Although KFN's debt-to-equity ratio of 2.41 is very high, it is currently less than that of the industry average.
- You can view the full KKR Financial Holdings Ratings Report.
- PBT 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. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.22, which illustrates the ability to avoid short-term cash problems.
- The gross profit margin for PERMIAN BASIN ROYALTY TRUST is currently very high, coming in at 100.00%. PBT has managed to maintain the strong profit margin since the same quarter of last year. Despite the mixed results of the gross profit margin, PBT's net profit margin of 95.21% significantly outperformed against the industry.
- PBT, with its decline in revenue, underperformed when compared the industry average of 6.5%. Since the same quarter one year prior, revenues fell by 30.9%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- The share price of PERMIAN BASIN ROYALTY TRUST has not done very well: it is down 9.30% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- PERMIAN BASIN ROYALTY TRUST's earnings per share declined by 32.4% in the most recent quarter compared to the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. During the past fiscal year, PERMIAN BASIN ROYALTY TRUST reported lower earnings of $1.16 versus $1.36 in the prior year.
- You can view the full Permian Basin Royalty Ratings Report.
- BKCC's revenue growth trails the industry average of 12.5%. Since the same quarter one year prior, revenues slightly increased by 1.9%. 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.
- The gross profit margin for BLACKROCK KELSO CAPITAL CORP is currently very high, coming in at 73.70%. Regardless of BKCC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, BKCC's net profit margin of 33.27% significantly outperformed against the industry.
- 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 Capital Markets industry. The net income has significantly decreased by 42.7% when compared to the same quarter one year ago, falling from $20.98 million to $12.02 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. When compared to other companies in the Capital Markets industry and the overall market, BLACKROCK KELSO CAPITAL CORP's return on equity is below that of both the industry average and the S&P 500.
- You can view the full BlackRock Kelso Capital Corporation Ratings Report.
- The revenue growth came in higher than the industry average of 6.5%. Since the same quarter one year prior, revenues rose by 22.7%. 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.
- Net operating cash flow has slightly increased to $25.61 million or 9.08% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -15.85%.
- The change in net income from the same quarter one year ago has exceeded that of the Oil, Gas & Consumable Fuels industry average, but is less than that of the S&P 500. The net income has significantly decreased by 29.5% when compared to the same quarter one year ago, falling from $7.81 million to $5.51 million.
- The debt-to-equity ratio of 1.49 is relatively high when compared with the industry average, suggesting a need for better debt level management. Along with the unfavorable debt-to-equity ratio, PVR maintains a poor quick ratio of 0.98, which illustrates the inability to avoid short-term cash problems.
- You can view the full PVR Partners Ratings Report.
- Our dividend calendar.