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 7.20%. 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 8.74. The average volume for KKR Financial Holdings has been 2,343,200 shares per day over the past 30 days. KKR Financial Holdings has a market cap of $2.5 billion and is part of the real estate industry. Shares are up 0.3% 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 attractive valuation levels, expanding profit margins and increase in stock price during the past year. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, generally higher debt management risk and weak operating cash flow. Highlights from the ratings report include:
- The gross profit margin for KKR FINANCIAL HOLDINGS LLC is currently very high, coming in at 73.47%. 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 28.90% significantly outperformed against the industry.
- 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 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 Diversified Financial Services industry. 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.
- The debt-to-equity ratio is very high at 2.32 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.
- The revenue growth greatly exceeded the industry average of 9.6%. Since the same quarter one year prior, revenues rose by 41.2%. 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 net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income increased by 7424.1% when compared to the same quarter one year prior, rising from $0.63 million to $47.18 million.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 25.82%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 150.00% compared to the year-earlier quarter. Although its share price is down sharply from a year ago, do not assume that it can now be tagged as cheap and attractive. The reality is that, based on its current price in relation to its earnings, ACC is still more expensive than most of the other companies in its industry.
- AMERICAN CAMPUS COMMUNITIES 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. Earnings per share have declined over the last year. We anticipate that this should continue in the coming year. During the past fiscal year, AMERICAN CAMPUS COMMUNITIES reported lower earnings of $0.55 versus $0.58 in the prior year. For the next year, the market is expecting a contraction of 15.4% in earnings ($0.47 versus $0.55).
- You can view the full American Campus Communities Ratings Report.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Semiconductors & Semiconductor Equipment industry. The net income increased by 38.9% when compared to the same quarter one year prior, rising from -$22.22 million to -$13.58 million.
- Net operating cash flow has increased to $20.17 million or 16.58% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -8.40%.
- CYPRESS SEMICONDUCTOR CORP has improved earnings per share by 40.0% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, CYPRESS SEMICONDUCTOR CORP reported poor results of -$0.32 versus -$0.16 in the prior year. This year, the market expects an improvement in earnings ($0.51 versus -$0.32).
- In its most recent trading session, CY 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. 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.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Semiconductors & Semiconductor Equipment industry and the overall market, CYPRESS SEMICONDUCTOR CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full Cypress Semiconductor Corporation Ratings Report.
- Our dividend calendar.