KKR Financial jumps as FBR sees dividend return

NEW YORK (AP) — KKR Financial LLC, which invests in high-yield corporate bonds, mortgage-backed securities and other debt-related instruments, may reinstate its dividend as early as the fourth quarter, said FBR Capital Markets, as improving credit conditions lead to stronger earnings.

Shares rose 30 cents, or 6.4 percent, to $5 in afternoon trading. They've changed hands between 40 cents and $7.11 in the past 12 months.

Analyst Gabe Poggi raised his price target to $6.25 from $4, saying the company's book value and earnings are set to grow as credit markets improve. He reiterated his "Outperform" rating, FBR's highest.

Liquidity at the holding company is now a "nonissue," and a dividend could be paid out of its earnings as soon as the fourth quarter, he said.

KKR Financial suspended its dividend payments last November amid a liquidity crunch.

The company declined Tuesday to comment on its dividend.

Poggi believes that some of the money KKR Financial is reserving against loan losses could be made good over time as the economy improves. He also said the company's ability to "take advantage of opportunities in corporate credit" may result in a stock price above book value as the economy recovers.

Book value refers to the net asset value of a company, what shareholders would theoretically receive upon liquidation.

KKR Financial is operated by private equity fund Kohlberg Kravis Roberts&Co.