History and Background of BlackRock
BlackRock, which was founded in 1988, evolved from an eight person start up to the world’s largest asset management firm, with over $9 trillion in assets under management (AUM). The firm made its Initial Public Offering on the NYSE (on 1st October, 1999) for $14 a share and is currently trading at $937.28 a share on the NYSE (as of September 5th 2021), with an annual revenue of $16.205B in 2020, a 11.46% increase from the previous year. The crown jewel of the firm after its proprietary technology- Aladdin, is its iShares ETFs as with an ongoing surge in the popularity of ETFs, a tremendous growth of the company has been observed.
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Why is this dividend stock catching every investor’s eye?
Though the investment firm is not a Dividend Aristocrat, it is well on its way as this dividend stock has become the talk of the financial world. Paying out a dividend of $4.13 per share, which is 13.7% higher than quarters before the previous one, BlackRock appears to be a compelling investment opportunity.
In terms of the company’s dividend growth, it currently pays an annual dividend of $16.52 per share and has a dividend yield of 1.76%. This compares to the average dividend yields for the Financial-Investment Management industry of 1.6% and the S&P 500 of 1.35%. Over the last 5 years, the firm has increased its dividend 5 times on a year-over-year basis for an average annual increase of 12.93%.
Though the dividend payout for the firm has observed few fluctuations, the graph above indicates that it has increased considerably over the past years. Additionally, BlackRock EPS for the twelve months ending 30 June, 2021 was $35.54, a 25.1% increase year-over-year and the firm’s 2020 annual EPS was $31.85, a 12.03% increase from 2019. This reflects the long lasting competitive advantage of the firm as in spite of a market instability post the COVID pandemic, the earnings per share have been growing rapidly, and dividends per share are growing right along with it.
BlackRock is maintaining a fantastic dividend payout: Top reasons behind the consistency
The firm boasts a sterling history when it comes to performance in the dividend market. Driven by a strong global presence that allows broad diversification and an organic growth, the firm’s revenues have been witnessing a constant uptrend over the years. The earnings growth also look solid for BlackRock as it is well positioned as a market leader in the fastest-growing segment of the asset management industry, ETFs. In the next 10 years, the ETF market is expected to grow tenfold and with it, one can expect the firm to grow as well. The firm has also established a consistent framework for the integration of ESG investing (environmental, social, and governance), which is another rapidly growing sector of the asset management business. Finally, BlackRock has engaged in an attractive investment combination, wherein as it is growing rapidly, it is paying out a small fraction of its earnings and is reinvesting enormously in their own business. This, in effect, creates a significant value for investors over the long run.
A potential risk
Although BlackRock witnessed strong fund inflows and an extremely impressive revenue growth in 2020 and in the early quarters of FY2021, the partial drivers for the growth were several external factors. These included, among many, market volatility which was a result of the Covid-19 pandemic, resulting economic slowdown, and headwinds in traditional industries such as energy, oil, travel, real estate, manufacturing, etc. Volatility in the market played a crucial role in positioning BlackRock as a more reliable and profitable investment venue among other traditional options. However, with mass Covid-19 vaccine rollouts and an expected recovery in world economies, there is a good probability that some of the investor funds will re-divert to the traditional industries, hurting the stock price and fund inflows of the firm. This risk might lead some investors to ponder again on their interpretation of the success of BlackRock and evaluate whether it outweighs the profits offered by the firm or not.
BlackRock is becoming the next sensation not only amongst young investors or those who are willing to tiptoe back into investing post the COVID pandemic but also, the retirees. In this volatile market, the firm boasts strong returns and a solid dividend with the stock currently sitting at Zacks Rank of 3 (Hold). Be it the stock price, earnings per share, or annualised return, it has outperformed the financials industry and the S&P 500.
To sum up, with a well-supported quarterly payout that it offers, BlackRock does sound like a dream stock and a reliable investment for investors. However, for a safe and reliable investment, one definitely needs to look out for some of its potential risks.
Surmai Tewari, King’s College London