KKR & Company And Blackrock, Inc.: Sparkling Pasts And Shining Futures

 |  Includes: BLK, KKR
by: Ken McGaha


Hiring others to manage your money for you can be safe and profitable, as long as you hire the best to do it.

KKR has astounding stability in the leadership roles for a very good reason: results.

Blackrock has produced stellar returns for shareholders over the last 10 years and shows no signs of slowing down.

Both of these businesses offer exceptional opportunities for investors today.

Private equity, wealth management and hedge fund style investment services are some of the most lucrative businesses in the world, as long as the people in charge possess the special expertise required to perform the necessary functions with a high level of expertise. The very wealthy, trust funds and pension funds pay top money managers huge sums for their expertise and advice regarding the allocation of vast sums of money. Wouldn't it be the best of all worlds if individual investors could not only hire the top money managers but get paid for doing it as well? Today, the best of all worlds has arrived.

Astounding longevity and success at the helm

In a world where it is almost common place to see changes in the executive suite, KKR & Company (NYSE:KKR) is an investment business that allocates capital in both the public and private equity markets with consistency and stability at the top. It was founded in 1976 by the current Co- Chief Executive Officers, Henry Kravis and George Roberts. With a track record spanning over 37 years in charge of this company, there is strong evidence this leadership duo is doing things that work and work well. But not just for themselves; they know how to treat investors as well.

KKR began trading as a public company in July of 2010 at a price of around $10/share, today it is changing hands at $24.86. In the final two quarters of 2010, KKR paid a total of $0.23/share in dividends. Since the end of 2012, it has paid dividends as follows:





YTD 2014

Dividends Paid





Change From Prior Year



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The current dividend yield on the shares is 6.92%, which, when viewed in combination with the growth in the share price since 2010 represents an absolutely stunning total return. Shareholders should absolutely love managers who pay them so well for the use of their capital. The fact that the business has a price to earnings ratio for 2014 of only 8.95 and analysts covering the stock have raised their estimates over 11% in just the last 90 days indicates the stock is cheap with an improving outlook.

Over the past five years, the business has produced average annual returns on equity and capital of 47.5% and 43.5% respectively. These are simply spectacular numbers. I believe it would be excessively optimistic to think any management team to continue this level of performance in the long term. However, even if these results were to fall by 50%, this business would be cheap based upon these two performance metrics.

It is rare to see a business these days that has retained the same leadership for almost 38 years; but, when you review the performance of Co-CEO's Kravis and Roberts over this time span, it would be even more unusual if anyone actually wanted a change.

Both size and performance

Blackrock Inc. (NYSE:BLK) was founded in 1988 as Blackstone Financial Management, changed its name to Blackrock in 1992 and became a publicly traded company with a 1999 initial public offering. They describe their business as "providing breadth of capabilities-and depth of knowledge-across active and passive strategies". It is currently led by Chairman and CEO Laurence Fink and President Robert Kapito and, at the end of March 2014, had $4.401 trillion under management. It seems some people with some serious amounts of money to invest think Mr. Fink and Mr. Kapito know what they are doing. Based upon their treatment of shareholders over the last 10 years, I would have to agree.

In September 2003, Blackrock paid its first quarterly dividend of $0.20/share; on June 5, 2014, it paid its most recent quarterly dividend of $1.93/share. This represents an 865% increase in the dividend payout in just under 11 years. The current yield is only 2.39% but the rate of growth has been spectacular. Not to be overshadowed by the dividend growth, the share price has been on an 11-year rampage as well. On April 1, 2003, the shares of Blackrock were trading for $45.48 and as I type today, the shares are at $323.60 representing a 611% increase in under 11 years. The market is obviously willing to recognize the favorable treatment of shareholder with an appropriate increase in the stock value as well. How could anyone complain about being treated so well for simply allowing this business to hold investment capital for them?

Currently, Blackrock trades at a price to earnings multiple of 17.4 in an industry where the average is 20.5. The average P/E multiple of the S&P 500 is currently at 17 times earnings. Over the past 90 days, analysts have raised their expectations for Blackrock's 2014 earnings by 2%; indicating that its forward prospects are improving. Given the past performance of the management team here, and the projected 5-year annual earnings growth rate of 12.8% plus the existing 2.39% dividend yield, this is a business that should be rewarded by 14% to 15% annual increases in the share price if it simply stays at an equal valuation to the S&P 500 average. If anyone thinks this business has no more value than the average company in the S&P 500 Index, maybe another look at the numbers would be helpful.

While there are never any guarantees of future performance, the record of Blackrock over the last 10 years, that includes one of the most difficult financial periods in the last 30-plus years, is certainly a strong indication that the folks running Blackrock are a truly talented bunch of people that know how to make money in varying market conditions. The fact that they have so richly rewarded shareholders on a consistent basis is about the best indication you can have that they will continue to do so in the future.

Final Thoughts And Suggested Actions

One of the truisms I know in investing is that opportunities are infinite, my capital is not. It is incumbent upon prudent investors to only allocate capital to the absolute best of the best investment opportunities in any sector. In this case we have two fine options that should at least perform evenly with the market and seem more than capable of continuing to deliver double-digit annual gains for years to come.

Both KKR and Blackrock offer proven track records of beating average market returns over time and management teams in place that continue to show they know how to treat shareholders very well. These are the kind of businesses that should never be trading at the prices we can have them for today. Once you own these businesses you will make excellent returns on your money without further effort and have some of the best management in the world to watch it for you as well. KKR and Blackrock are must-buys right now.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.