With the market at all-time highs, we all feel the intensifying tug of war between greed and fear. The former exhorts us to get into the market by pointing to improving housing, reduction of jobless claims, resilience of the market to adverse events (e.g. Cyprus) and the prospect of QE infinity (quantitative easing as far as the eye can see). The latter worries us with Congressional wrangling, the escalating tensions between China & Japan, the contrarian indicators of extraordinarily low volatility, and sobering prospect of reduced earnings growth. The sanest course in such a market is to invest in quality companies at a reasonable price (reasonable being measured relative to the market).
Here are five reasons I believe Blackrock (BLK) is such a stock:
- Fundamentals. Blackrock's core business is asset management. This is a business that should benefit, as aging baby boomers look to asset managers to help them manage their portfolios for both growth and income in a volatile market. Blackrock's particular edge as a stock is that its asset management is both broad-based (it pioneered Exchange Traded Funds or ETFs) and enables investors to participate in the 'spicier' and higher growth segment of 'alternative investments.' The figure below shows a breakdown of Blackrock's stock value according to different sub-segments of the asset management market. (click to enlarge)
- Technicals. Over the last 6-12 months (see figure below), Blackrock has handily outperformed both the S&P 500 and the Financial Select Sector Spider (XLF). In Blackrock, you are not only investing in a sector that has to do well for the economy to expand, but doing so thru a 'best in breed' franchise. (click to enlarge)
- Dividend Growth. In a market such as this, quality is necessary but not sufficient. With high frequency trading, even the best stocks can take a savage dip when the market hits an air pocket. The difference with Blackrock (if you are a long-term investor) is, that you're paid to wait. Blackrock has increased its dividend by 15% per year over the last five years. And (as can be seen in the figure below from blackrock.com) it has done so consistently, not withstanding the 2009 apocalypse. With its earnings growing and a policy to distribute about 40% of earnings as dividend, both the dividend (about 2.6% at present) and dividend growth seem safe for the foreseeable future. (click to enlarge)
- Insiders. With the market making new highs, insider buying has become a lot more sedate in general. But there were a spate of insider buys in the $190 range and several insider acquisitions as well as a buy at about $235. This suggests that while the current $255 (Blackrock's price on March 29th when this article was written) isn't a screaming value, it is still perceived as fairly priced by insiders.
If you're an income investor with a longer-term horizon that is looking at steady dividend yielders (e.g. Consumer Staples and Pharmaceuticals), you might do well to consider Blackrock. While its yield of 2.6% may seem meager in comparison to Blue Chips that yield 3-4%, its 15% annual dividend growth is unmatched in the large-cap universe.