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 9.10%. 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 6.91. The average volume for KKR Financial Holdings has been 919,700 shares per day over the past 30 days. KKR Financial Holdings has a market cap of $2.0 billion and is part of the real estate industry. Shares are down 8.7% year to date as of the close of trading on Friday. TheStreet Ratings rates KKR Financial Holdings as a hold. The company's strengths can be seen in multiple areas, such as its notable return on equity, expanding profit margins and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including generally higher debt management risk and feeble growth in the company's earnings per share. Highlights from the ratings report include:
- Compared to its price level of one year ago, KFN is down 4.73% to its most recent closing price of 9.68. Looking ahead, our view is that this company's fundamentals will not have much impact either way, allowing the stock to generally move up or down based on the push and pull of the broad market.
- The net income has significantly decreased by 64.4% when compared to the same quarter one year ago, falling from $111.96 million to $39.89 million.
- KKR FINANCIAL HOLDINGS LLC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. 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 33.5% in earnings ($1.25 versus $1.88).
- Although KFN's debt-to-equity ratio of 2.32 is very high, it is currently less than that of the industry average.
- You can view the full KKR Financial Holdings Ratings Report.