Philip Morris International Inc. (PM), KKR & Co. L.P. (KKR): Top Three Dividend Growers

Kings of the private equity business

Generally, I do not like to own asset management businesses. That said, I think that KKR & Co. L.P. (NYSE:KKR), usually known as KKR & Co. L.P. (NYSE:KKR), is not only  becoming a sustainable company, but it is also trading at a very reasonable level. Hence, you should keep it on your watchlist.

Compared to its peers, KKR & Co. L.P. (NYSE:KKR) has historically been the pure private equity (PE) company. As for last year, 75% of fee income and 96% of carry income came from PE as opposed to public market businesses (compared to 24% and 28% for The Blackstone Group L.P. (NYSE:BX) ). This makes KKR a more stable long-term cash flow generator since assets under management (AUM) are more stable at PE firms than at asset management firms that operate in public markets only.

Besides, KKR & Co. L.P. (NYSE:KKR) has $7.1 billion in capital – more than any of its peers, most of which are significantly larger in terms of total AUM and revenues. This strong balance sheet gives KKR & Co. L.P. (NYSE:KKR) shares support for difficult times as well as unparalleled flexibility to commit capital.

All of the above being said, KKR & Co. L.P. (NYSE:KKR) is diversifying itself into public markets. Since investor’s day in 2011, non-PE AUM soared from $16 billion to $32 billion and management fees went up from $61 million to $128 million.

For 2013, most analysts expect about $2 in distributable earnings and $1.47 in distributions. Moreover, I think the company has the tools to boost distributable earnings by 25% for 2014.

Trading at 7.7 times 2013 earnings and paying a 5.5% cash dividend yield, I like KKR & Co. L.P. (NYSE:KKR). The company’s substantial balance sheet should keep on growing and providing the firm with the funds to fuel both organic growth initiatives as well as income to shareholders.

Bottom line

The three companies named above are all sustainable dividend payers that have been growing their dividends at high rates for the last three years. I believe that, in most cases, growing cash dividends indicate the management’s commitment to deliver value to shareholders.

Federico Zaldua has no position in any stocks mentioned. The Motley Fool recommends Mattel. The Motley Fool owns shares of Philip Morris International. Federico is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Top 3 Dividend Growers originally appeared on Fool.com is written by Federico Zaldua.

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