KKR: Best of breed in private equity
This high yielding firm is a play on increased buyout and financing activity in the markets.
By Mark Skousen, Forecasts & Strategies
In the past year, we have been big fans of private equity stocks and business development companies. These specialty finance companies are growing fast and increasing their dividends.
They are taking full advantage of the Federal Reserve's easy money policies and the banking industry's reluctance to finance small businesses.
KKR & Co. (KKR) is a New York global private equity investment firm specializing in acquisitions, leveraged buyouts, managed buyouts, special situations, growth equity, as well as mature and middle market investments.
It is the best of breed, beating out its competitors in practically every category: return on equity (20.3%), operating cash flow ($6.2 billion) and dividend yield of 6%.
It's extremely rare to find a leader that outperforms in every category and is still the cheapest in terms of price-to-earnings ratio (under 10).
Last month, the company beat profit estimates and reported that assets under management rose to a record $78 billion.
In addition, KKR announced that it would initiate paying quarterly distribution totaling 40% of its balance sheet income.
Despite the run-up, KKR is still undervalued, based on its expected dividend yield (6% or better), its price-to-earnings ratio (7-8), and its PEG, which is price-to-earnings-to-growth, ratio (0.17). Anything less than one is considered an excellent PEG .
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The offering could become the second-biggest this year if underwriters exercise an option to buy more shares.
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