KKR Earning Billions; I'll Take 7.3% On The Recently Issued Preferred Stock

Feb.19.13 | About: KKR (KKR)

KKR has quite the storied past. The firm sponsors and manages private equity investment funds and has completed over $400 billion of private equity transactions and was a pioneer in the leveraged buyout industry. Since its founding, KKR has completed a number of landmark transactions including the 1989 leveraged buyout of RJR Nabisco, which was the largest buyout in history to that point. KKR has completed investments in over 160 companies since 1977, completing at least one investment in every year except 1982 and 1990. KKR Financial Holdings, a separate company, invests in several of KKR’s strategies and is managed by KKR.
While KKR common stock is up 18% YTD and 99% over the past five years and earlier this month announced a .70 dividend for the quarter (not bad for an $18.03 stock), I prefer KKR Financial Holdings LLC 7.38% Series A, which went public on 1/28/13 at this point. After all, if it can continue to earn big bucks like in the past, I shouldn't have to worry about it missing a preferred stock payment.

KKR Financial Holdings LLC 7.38% preferred stock is currently priced at $25.27 for a current yield of 7.30%. It is rated Ba1 by Moody's and BB by S&P and is callable on 1/15/18. I was slightly hesitant about investing in this preferred stock because holders will be issued a K-1 form, which is a bit more complicated than 1099s. I decided that it was worth the extra effort for its highly competitive yield. It also isn't selling at much of a premium unlike two of its NYSE traded notes. KKR Financial Holdings also has S&P BBB- rated 7.5% Sr. Notes due 2042, which at $27.14 has a 6.91% current yield but is callable on 3/20/17 and S&P BBB- rated 8.375% Senior Notes due 2041 which at $27.91 has a current yield of 7.5%.

Disclosure: I am long KFN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.