BlackRock: A Dividend Contender With 16 Years Of Solid Growing Income
- BlackRock’s total return over-performed the Dow average for my 52-month test period by 52.55%.
- BlackRock’s dividend yield is above average at 3% and has been increased for 16 years in a row as a dividend contender with an 11% five-year dividend growth rate.
- BlackRock’s three-year forward CAGR at 7% is good and gives you growth with the increasing United States economy after the Virus is controlled and the markets get back to normal.
- Earnings for BlackRock’s last quarter were good with earnings, beating estimate, inline earnings compared to last year, and increasing revenues of 10.88% year over year.
BlackRock (NYSE:BLK), provides a range of investment and risk management services to institutional and retail clients worldwide, is a buy for the dividend growth and total return investor. BlackRock has steady growth and has plenty of cash, which it uses to add new products and increase the dividend each year. Even with an earnings beat in the last quarter and Mr. Market viewed BLK as fully valued. I think this is an opportunity to buy a great company at a discount if you do not have a position in the company. BLK is being considered for The Good Business Portfolio, my IRA portfolio of good business companies that are balanced in all styles of investments.
Source: BlackRock web site
BlackRock is being reviewed using The Good Business Portfolio guidelines. I use a set of guidelines that I codified over the last few years used to evaluate the companies in The Good Business Portfolio (my portfolio) and other companies that I am reviewing. For a complete set of guidelines, please see my article " The Good Business Portfolio: Update to Guidelines, March 2020". These guidelines provide me with a balanced portfolio of income, defensive, total return, and growing companies that hopefully keeps me ahead of the Dow average.
When I scanned the five-year chart, BlackRock has a bumpy chart going up, and to the right is a fairly steady slope for 2016-2017 and 2018, then in 2020, the coronavirus correction hit and BLK dropped with the market. The market has come back up some, and BLK has bounced back like the good business it is and now is still priced below the one year target and a buy.
BlackRock is reviewed in the following topics below.
- Investment Fundamentals
- Company Business
- Portfolio Management Highlights
The Good Business Portfolio Guidelines are just a screen to start with and not absolute rules. When I look at a company, the total return is a crucial parameter to see if it fits the objective of the Good Business Portfolio. My total return guideline is that total return must be higher than the Dow's total return over my test period. BlackRock beats against the Dow baseline in my 52-month test compared to the Dow average. I chose the 52 month test period (starting January 1, 2016, and ending to date) because it includes the great year of 2017 and 2019, and other years that had a decent and lousy performance. The good BLK total return of 85.03% compared to the Dow base of 32.48% makes BlackRock a good investment for the total return investor that also wants a steadily increasing income. Looking back five years, $10,000 invested five years ago would now be worth over $14,500 today. This gain makes BlackRock a good investment for the total return investor looking back, which has future growth as the worldwide demand for more of BlackRock's services and investment products.
Dow's 52 Month total return baseline is 32.48%
BlackRock does meet my dividend guideline of having dividends increase for 8 of the last ten years and having a yield of at least 1%, passing this guideline with dividend increases for 16 years. The five-year earnings payout ratio is moderate, at 55%. After paying the dividend, this leaves plenty of cash remaining for investment in expanding the business. The quarterly dividend was raised in January to $3.63/Qtr. or a 10% increase. The dividend income is good, and the present future growth of 7% is very good for the investment bank sector.
I also require the CAGR going forward to be able to cover my yearly expenses and my RMD, which is zero in 2020, with a CAGR of 5.2%. My dividends provide 3.3% of the portfolio as income, and I need 1.9% more for a yearly distribution of 5.2%. The three-year S&P CFRA CAGR of 7% is above my requirement, passing my guideline requirement for this year. The fair future growth for BlackRock can continue its uptrend benefiting from the continued returning growth of the United States and world economies as it comes back from the coronavirus.
I have a capitalization guideline where the capitalization must be greater than $10 billion. BLK passes this guideline. BLK is a large-cap company with a capitalization of $73.7 billion well above the guideline target. BlackRock 2020 projected cash flow from operations at $1.9 billion is good, allowing the company to have the means for company growth and increased dividends.
One of my guidelines is that the S&P rating must be three stars or better. BLK's S&P CFRA rating is four stars or buy with a one-year target price of $508, passing the guideline. BLK price is below the target price at present by 5% and has a moderate PE of 18, making BLK a buy at this entry point when you consider the solid growing dividend long term.
One of my guidelines is would I buy the whole company if I could. The answer is yes. The total return is good, and the above-average growing dividend income makes BLK a great business to own for growing income and future growth. The Good Business Portfolio likes to embrace all kinds of investment styles but concentrates on buying companies that can be understood, makes a fair profit, invests profits back into the business, and also generates a good income stream. Most of all, what makes BLK interesting is the reasonable future growth rate of its business and the diversity of its products and services with worldwide locations.
I look for the earnings of my positions too consistently beat their quarterly estimates. For the last quarter on April 16, 2020, BlackRock reported earnings that beat expected by $0.48 at $6.60, compared to the previous year at $6.61. Total revenue was higher at $3.71 billion more than a year ago by 10.88% year over year and beat by $34.23 million from the expected total. This was a good report with a bottom-line beating expected with a small decrease from last year and the top line having a strong increase compared to last year. The next earnings report will be out mid-July 2020 and is expected to be $6.30 compared to the previous year at $6.41, a small decrease.
BlackRock is one of the largest providers of investment and risk management services in the United States and foreign countries.
As per data from Reuters:
BlackRock is an investment management company. BlackRock provides a range of investment and risk management services to institutional and retail clients worldwide. Its diverse platform of active (alpha) and index (beta) investment strategies across asset classes enables the Company to tailor investment outcomes and asset allocation solutions for clients. Its product offerings include single- and multi-asset portfolios investing in equities, fixed income, alternatives, and money market instruments. Its products are offered directly and through intermediaries in a range of vehicles, including open-end and closed-end mutual funds, iShares exchange-traded funds (ETFs), separate accounts, collective investment funds, and other pooled investment vehicles. It offers its Aladdin investment system, as well as risk management, outsourcing, advisory, and technology services, to institutional investors and wealth management intermediaries under the BlackRock Solutions name.
Overall, BlackRock is a good business with an estimated 7% CAGR projected growth as the worldwide economy grows going forward with the increasing demand for BLK's services and investment products. The good earnings and revenue growth provides BLK the capability to continue its growth as the business increases foreign expansion. The graphic below shows how BLK is diversified in both types of products and worldwide locations.
Source: 1st Quarter Earnings call presentation.
From the 1st quarter's earnings, call are a few highlights that show the growth and opportunities that are the future of their growing investment and risk management services business.
- Through these challenging times, the strength and resilience of BlackRock's business model have become even more apparent than ever before. The many quarterly updates over the long-term to diversify their investment capabilities and to operate on a unifying technology platform, Aladdin, are differentiating them at this moment for clients, for our shareholders, and for our employees.
- We did not design our operating model for this pandemic or any -- or/and almost any virtual work environment in mind. But because of BlackRock's strong culture and our long history of connecting a global organization on one technology platform has enabled more than 95% of their 16,000 employees to work remotely from home, while continuously delivering seamlessly for our clients.
- Momentum in 2019 continued into the first quarter, and they saw $75 billion in net inflows in the first seven weeks of the year. Despite market-related outflows, including over $40 billion of de-risking by institutional clients in index strategies in the last five weeks of the quarter, they ended the quarter with $35 billion in net inflows driven by cash and liquid alternatives.
- BlackRock raised a total of $7 billion of net inflows and commitments in illiquid alternatives this quarter, our third best quarter in history. They also deployed $2 billion on behalf of their clients and closed several large client commitments in the midst of market volatility, including our third vintage global energy and power funds.
- BlackRock's cash management platform generated a record of $52 billion in net inflows in the first quarter, benefiting from a surge in industry flows into U.S. government funds over the past three weeks. Over the last three weeks, BlackRock has connected with nearly 50,000 clients, significantly eclipsing all historical records for client contacts.
This shows the feelings of top management for the continued growth of the BlackRock business and shareholder return with an increase in future growth. BLK has good constant growth and will continue as the world economy grows after the Virus is controlled.
BlackRock is a good investment choice for the dividend growth investor with its average growing dividend income and a good choice for the total return investor. BlackRock will be considered for The Good Business Portfolio when cash is available, and I don't have any investments in this sector. If you want a steady growing dividend income and good total return, in a growing investment and risk management business, BLK may be the right investment for you.
Portfolio Management Highlights
I am not selling in this correction and will wait it out until the stay at home order is over in many states and the United States is growing again. The good businesses in my portfolio should pop when this happens, hopefully in the next two months. The selling volume is down; therefore, the market may be near the bottom, and better up markets are coming soon. When I make the next trade, I will note it in this section, and my last trade was in early February 2020.
Johnson & Johnson (JNJ), one of my favorites, is now at 10% of the portfolio, and I am considering trimming it down to 9%. I had gotten hurt a bit by Boeing, which I let go to 16% of my portfolio before I trimmed it to 15% than the 737 Max problem hit, and the Virus made the share price go down 70% over the past year.
The total return for the Good Business Portfolio is ahead of the Dow average from 1/1/2020 to May 1 by 0.2%, which is a small gain above the market loss of 16.87% for the portfolio with Boeing (BA) a strong drag. Each quarter after the earnings season, I write an article giving a complete portfolio list and performance, the latest article is titled "The Good Business Portfolio: 2019 4th Quarter Earnings and Performance Review". Become a real-time follower, and you will get each quarter's performance and portfolio companies after this earnings season is over in a few weeks.
This article was written by
Analyst’s Disclosure: I am/we are long BA, JNJ, HD, EOS, DHR, MO, V, OHI, PM, O, MCD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Of course, this is not a recommendation to buy or sell, and you should always do your own research and talk to your financial advisor before any purchase or sale. This is how I manage my IRA retirement account, and the opinions of the companies are my own.
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