BlackRock: Why You Should Buy This Unstoppable Asset Manager Now

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BlackRock just hiked its dividend by 18.2%, but its adjusted diluted EPS payout ratio is only going to rise slightly from 42.2% last year to 46.1% this year.

The asset manager posted 19.6% net revenue growth in 2021 and 15.8% adjusted diluted EPS growth during that same time, which is spectacular for a company of its size.

BlackRock’s interest coverage ratio is over 40, which signals that the company’s balance sheet is fortress-like.

Based on my inputs into the dividend discount model and discounted cash flows model, BlackRock’s stock is trading at a 20% discount to fair value.

BlackRock’s 2.6% dividend yield and conservative 8% annual earnings growth will deliver double-digit annual total returns without even considering valuation multiple expansion.

Watering Money to Make it Grow What do plants and a dividend growth stock portfolio have in common?

For one, plants require a steady supply of water and light to both survive and grow. The same can also be said of a dividend growth stock portfolio, which best grows with regular infusions of capital.

The other thing that both plants and a dividend growth stock portfolio need is the time to grow. Even the mightiest of oak trees and the largest of investment portfolios once started as small seeds.

One stock within my portfolio that I’d like to build out in the years ahead is the most dominant asset manager in the world, which is BlackRock ( BLK ). For the first time since my prior article on the stock in June , let’s take a look at BlackRock’s risks and why it is a strong buy for dividend growth investors. The Safest Dividend Is The One Just Hiked

Last month, BlackRock announced that it was raising its quarterly dividend by 18.2% from $4.13 to $4.88 per share. With such a strong raise, it’s worth asking the following: Can BlackRock afford its dividend?

I’ll look at the stock’s dividend yield compared to its industry and its payout ratios to answer this question.

BlackRock’s 2.60% dividend yield is moderately lower than the asset management industry average of 2.90%. This suggests that the market views the stock’s dividend as relatively safe compared to its industry.

BlackRock reported $39.18 in adjusted diluted EPS in 2021 against $16.52 in dividends per share that were paid during that time. This equates to an adjusted diluted EPS payout ratio of 42.2%.

Looking at the current year, analysts are expecting that BlackRock will produce $42.34 in adjusted diluted EPS . Compared to the $19.52 in dividends per share that are slated to be paid this year, this is a payout ratio of 46.1%.

Since the asset management industry is a capital-light business, I view payout ratios around 40% as quite sustainable. That’s why I believe BlackRock’s dividend will grow in line with or slightly ahead of earnings over the long term.

And with analysts forecasting 12% annual earnings growth over the next five years, I’m reiterating my annual dividend growth rate of 8% for the long run. BlackRock Turns Out A Breathtaking 2021

Page 1 of BlackRock’s Q4 2021 Earnings Press Release BlackRock produced splendid results for its shareholders in 2021.

For one, the company’s average assets under management or AUM grew 24.1% year-over-year to $9.36 trillion last year. And even better, BlackRock ended the year with over $10 trillion in AUM (all details sourced from page 1 of BlackRock’s Q4 2021 earnings press release). This makes it the first asset manager to reach the monumental milestone.As a result of BlackRock’s significantly higher AUM base, it shouldn’t come as a surprise to learn that the company’s net revenue surged 19.6% higher year-over-year to $19.37 billion last year (data according to page 1 of BlackRock’s Q4 2021 earnings press release).BlackRock’s adjusted diluted EPS growth lagged behind revenue at 15.8% year-over-year, posting $39.18 in adjusted diluted EPS last year. This can be explained by the fact that BlackRock rewarded all employees with 8% pay raises that went into effect last September. While this cut into BlackRock’s margins, I believe it will be a wise move for the company to attract and retain the best talent. Page 4 of BlackRock’s Q4 2021 Earnings Press Release Aside from BlackRock’s healthy operating fundamentals, the company also possesses a rock-solid balance sheet (pun intended).This claim is supported by BlackRock’s interest coverage ratio, which improved from an already great 32.8 in 2020 ($6.73 billion in earnings before interest and taxes/$205 million in interest expenses from page 4 of BlackRock’s Q4 2021 earnings press release) to an even better 40.9 last […]

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