Featured Articles

Value Investing Series

KKR Financial Holdings: A Value Investment Pick

August 6, 2010

If you want me to name one stock which is worth for long term investment (buy-and-hold), it has to be KKR Financial Holdings (KFN).

KFN just announced its latest earnings. The company earned $0.51/per share in its latest quarter and earned $1.33/per share for the first half this year.

More importantly, the company raised its quarterly dividend by another 20%: from $0.10 to $0.12.

The following is its dividend history after it resumed its dividend since Q4, 2009:

  • Q4, 2009 - $0.05
  • Q1, 2010 - $0.07
  • Q2, 2010 - $0.10
  • Q3, 2010 - $0.12 (expect to deliever this month).

We bought this stock July 30, 2009 at a price of $1.79 and have reduced our cost basis to $1.57 now, using our dividend-reinvestment-plan and will reduce it further to $1.45 if the coming quarterly dividend is to be re-invested.

Now the company's dividend equals to $0.48/year. Let us assume that the company's dividend keeps unchanged for the next two years. That means, our cost basis will be reduced to $0.49 two years from now if we keep implementing our dividend reinvestment plan.

What does that mean? That means our initial investment will allow us to collect a 100% annual dividend after three years of our buy.

That is, we buy-and-hold this stock without any trade during the three year span, our initial $100k investment will distribute at least $100k annual dividend to us (it will be tax free if the money is invested in Roth IRA account). The stock will be traded at least $10.00 then (it is now an $8.50 stock).

Don't forget that the company's annual dividends were well above $1.00 before the current recession:

  • 2005 $0.32 (The company did IPO in Q4, 2005 with IPO price of $25)
  • 2006 $1.86
  • 2007 $2.16
  • 2008 $1.80
  • 2009 $0.07
  • 2010 $0.29 (up to Q3)
  • 2011 ?
  • 2012 ?

If the company can increase its annual dividend to $1.00 level in two years, our initial $100k investment will give us more than $200k annual dividend.

That is the true investment we have been looking for.

No daily market analysis, no frequent tradings.

Copyright@myIRAs.net 2006-2018. All Rights Reserved.