BlackRock has established itself as the largest asset management firm in the world.
Profitability and growth make the stock outperform both the market and the financial sector.
BlackRock is committed to growing income distributed to investors.
Current valuation metrics make the current stock price appear somewhat expensive.
Olivier Le Moal/iStock via Getty Images Thesis
BlackRock ( BLK ) is a leading global investment management firm with $8.68 trillion of Assets Under Management (AUM) as of December 31, 2020. The stock has also been one of my core portfolio holdings for some time now, delivering great price appreciation in the past couple of years. In this analysis, I will outline my bullish outlook for the company, but also express some hesitation given the current valuation of the stock. Asset Management Macro Trends
The asset management industry has emerged from the global pandemic in a position of strength, with assets growing by 11% in 2020 to end the year at $103 trillion. Retail portfolios, representing 41% of global assets at $42 trillion, grew by 11% in 2020, while institutional investments grew at a similar pace to reach $61 trillion, or 59% of the global market. In a growing asset management industry, ETF products stand out, growing rapidly as the number one choice for retail investors. BlackRock and other ETF providers offer products addressing almost every investor’s need, from total market index funds to industry-specific ETFs and growth or value-focused instruments, every investor has a wide range of choices that cater to his own strategy and return-risk preferences. Fees for investing have never been lower with some ETFs like iShares S&P 500 IVV offering expense ratios of just 0.03%.
According to a PwC survey while the North American market dominates in terms of volume and momentum, The European ETF market, is expected to grow by 27% on an annual basis, reaching $1.6T of AUM by the end of 2021. The Asian market, although significantly smaller in size, appears poised for growth, particularly as markets become more integrated and regulations are further improved and encourage access to ETFs and other global investment products. Source: PwC survey
Currently, BlackRock’s iShares claim 9 of the top 20 ETFs by market cap globally, according to the statistics provided by Statista.com . Source: Statista.com A Proven Business
BlackRock reported Assets Under Management (AUM), reaching $9.5 trillion at the end of Q3, on September 30th, 2021, reinforcing the company’s position as the largest asset manager in the world. Vanguard follows with AUM of approximately $7.5 trillion.
The company’s business model has delivered strong performance and efficiency, as it revolves around innovation and offering a wide range of products to a diversified client base. The most recent Q3 2020 earnings release confirmed once again Blackrock’s impressive track record and potential. Profitability, as well as Revenue and Income growth, remained strong, with Revenue growing 14% and Net Income 21% from Q3 2020. Price Performance and Dividends
Blackrock’s investors have seen a lot of price appreciation in the past couple of years. Despite a sharp drop when COVID-19 hit in early 2020, the stock recovered fast and has continued to climb, reaching a 3-year total return of 110%, easily beating the S&P 500’s and the Financial Sector’s performance for the same time period. 5-year and 10-year Total returns have reached impressive levels of 138.69% and 437.80% respectively. Data by YCharts Dividend growth is another area of strong performance for BlackRock. While the FWD yield of 1.83% is by no means eye-catching, it still beats the S&P’s 1.26% yield. It is also important to note that the fast price growth BlackRock’s stock has seen has caused yields to fall, even though the company has been raising dividends consistently. To be more specific, dividends have grown at a CAGR of 12%, for all the trailing 3, 5 and 10-year periods, proving the management’s commitment to growing distributions while beating the Industrial sector’s dividend growth of 7.34%, 7.97% and 8.55% over the same time spans. Seeking Alpha offers a perfect A+ dividend safety grade and an A- grade for dividend consistency for BlackRock, suggesting that investors are unlikely to encounter trouble down the road regarding the company’s dividend payments. The payout ratio for Blackrock stands at a safe 42.64%, that has actually never risen above the 50% mark over the last decade. BlackRock’s dividend performance since 2009 is summarized in the chart below.
Source: Tikr.com Valuation
A relative look at BlackRock’s valuation will help provide some insight regarding the possible price-value gap the stock stands […]