Blackrock (BLK) is the largest investment manager in the world, with over $6.5 trillion in assets under management.

Over the past decade, the stock has compounded by 14.96%/year. Future returns will likely be lower, and they will track growth in earnings per share and the initial dividend yield at the time of investment.

The company has managed to grow dividends for nine years in a row. In 2019, it will reach dividend achiever status.

Between 2007 and 2017, Blackrock compounded dividends at an annualized rate of 14.10%/year. The company last raised dividends by 8.70% to $3.13/share in July 2018. This was on top of the regular dividend increase in January, which lifted the quarterly distributions by 15% to $2.88/share.

Between 2007 and 2017, Blackrock managed to grow its earnings from $7.37 to $22.60. The 2017 figures are adjusted for one-time events related to the new tax law, as well as returning foreign earnings back to the US. The company is expected to earn $27.73/share in 2018.

The company is a leader in the asset management industry, with tremendous scale. It also has a diversity of products offered (equity, fixed income etc), geographic diversity ( Americas, Europe, Asia etc) in its products offered and the types of strategies offered ( active, passive, cash management). The company also has diversity in clients served – retail & institutional. 

The company is a leader in ETFs, with tremendous inflows coming its way as there is a trend to switch from high cost mutual funds to ETFs. Unfortunately, passively managed ETFs provide a lot of assets, but not as much in profits as actively managed funds. The actively managed funds that Blackrock manages tend to be a portion of the assets, but account for almost half of profits. Actively managed products accounts for a quarter of assets and half of revenues. Passively managed assets account for 2/3rds of AUM, but half of revenues.

Blackrock has managed to grow organically, through new product introductions and through acquisitions. Given it massive scale, it is quite possible that new acquisitions will not have as big of an impact in the long-run. The massive scale does create advantages, since it spreads costs over a larger base, thus ensuring higher profits than smaller competitors. This also offers advantages in distribution as well.

Most asset managers manage to grow the bottom line by attracting new funds from new or existing investors, net of any that sell their holdings. Blackrock has done a great job growing assets organically and through acquisitions over the past decade. If financial markets rise over the next decade, it will also benefit from growing assets under management brought by higher prices. This is a two-edged sword, however, because it leaves them exposed in the short-run by market volatility. I do believe that in the long-run, assets will likely go up, bringing a nice tailwind to investment managers such as Blackrock. If we get lower prices in the short run, however, we will witness lower earnings per share and lower multiples. This is why I am buying those assets managers on the scale down.

The number of outstanding shares increased between 2009 and 2010, due to acquisitions. Blackrock has been steadily reducing the number of share outstanding since then. Regular share buybacks can increase investors ownership interest in an enterprise, and automatically lift earnings per share. Companies have to be careful however not to overpay for shares they are retiring, otherwise, they are wasting shareholder assets.

The dividend payout ratio has remained around 45% during the current decade; the only volatility occurred during the 2007 – 2009 financial crisis, when declines in assets under management resulted in lower earnings per share. The company did keep the dividend unchanged in 2009. If 2019 is a tough year for stocks, we may see Blackrock freezing dividends once again. Once things normalize, however, Blackrock will likely start growing distributions again.

Currently, shares of Blackrock are attractively valued at 14.40 times forward earnings and spot a dividend yield of 3.10%. Asset managers have been on sale as of recently in general, after a difficult 2018.