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 9.38. The average volume for KKR Financial Holdings has been 2,210,200 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 0.8% 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, attractive valuation levels and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share, deteriorating net income and generally higher debt management risk. Highlights from the ratings report include:
- KFN's revenue growth trails the industry average of 13.4%. Since the same quarter one year prior, revenues slightly increased by 2.2%. 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.
- 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 decreased by 10.6% when compared to the same quarter one year ago, dropping from $77.01 million to $68.88 million.
- The debt-to-equity ratio is very high at 2.38 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.
- Despite its growing revenue, the company underperformed as compared with the industry average of 6.3%. Since the same quarter one year prior, revenues slightly increased by 0.4%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- The net income growth from the same quarter one year ago has exceeded that of the Real Estate Investment Trusts (REITs) industry average, but is less than that of the S&P 500. The net income increased by 13.5% when compared to the same quarter one year prior, going from $69.22 million to $78.56 million.
- MFA has underperformed the S&P 500 Index, declining 10.83% from its price level of one year ago. 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.
- Net operating cash flow has declined marginally to $70.96 million or 8.78% when compared to the same quarter last year. Despite a decrease in cash flow MFA FINANCIAL INC is still fairing well by exceeding its industry average cash flow growth rate of -54.21%.
- You can view the full MFA Financial Ratings Report.
- FE's revenue growth has slightly outpaced the industry average of 3.4%. Since the same quarter one year prior, revenues slightly increased by 4.7%. Growth in the company's revenue appears to have helped boost the 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 Electric Utilities industry. The net income increased by 195.9% when compared to the same quarter one year prior, rising from -$148.00 million to $142.00 million.
- FIRSTENERGY CORP reported significant earnings per share improvement 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, FIRSTENERGY CORP reported lower earnings of $0.90 versus $1.80 in the prior year. This year, the market expects an improvement in earnings ($2.61 versus $0.90).
- Currently the debt-to-equity ratio of 1.63 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Along with this, the company manages to maintain a quick ratio of 0.28, which clearly demonstrates the inability to cover short-term cash needs.
- 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 Electric Utilities industry and the overall market on the basis of return on equity, FIRSTENERGY CORP underperformed against that of the industry average and is significantly less than that of the S&P 500.
- You can view the full FirstEnergy Ratings Report.
- Our dividend calendar.