Kohlberg Kravis Roberts & Co.
Trailing Dividend Yield: 8%
Payout Ratio (based on 2014 earnings): 70%
Since Jan. 1, investment firm Kohlberg Kravis Roberts & Co. (KKR) has beat the market with a 33% climb, and also boasts a dividend currently yielding north of 8% based on its past four payouts.
However, that sky-high yield is a little skewed. A bang-up fiscal fourth quarter that saw profits jump by 49% led to a 70-cent payout in early 2013 that was well above the norm. Most payouts have come in a range of 10 cents and 40 cents in recent years.
Tallying up the past four payouts, including that 70-cent reward, the company’s annual dividend comes to $1.63 per share — three-quarters of projected 2013 earnings and 70% of projected 2014 earnings. Add in expectations that KKR’s net income will actually fall 7% annually over the next half-decade, and that operating cash flow is also in a downtrend, and it’s extremely likely “8%” isn’t a sustainable yield.
The good news, of course, is that even excluding that outlying 70-cent payout, KKR still would offer a yield of roughly 4% to 5%. Plus, KKR has shown that a big quarter will trickle down in the form of additional income.
Just don’t get blinded by the headline 8% yield.
As of this writing, Alyssa Oursler did not hold a position in any of the aforementioned securities.