Down 40%, This Monster Dividend Stock Offers Passive Income and Big-Time Upside Potential
by Brian Neeley October 24, 2022 in News
Down 40%, This Monster Dividend Stock Offers Passive Income and Big-Time Upside Potential
shares of Blackstone Group (BX 1.65%) has fallen more than 40% from its peak. This sell-off comes even when the leading alternative asset manager is thriving in the current environment. Its various funds have outperformed the public stock and bond markets. This is prompting more investors to hand over their precious capital to Blackstone, leading to a significant increase in its assets under management and fee-related income.
Those rising fees are allowing Blackstone to pay an attractive dividend. With its share price declining, its dividend yield is over 6%. Add that big-time yield to Blackstone’s growth prospects and discounted stock price, and it has significant total return potential.
A paradise amidst the storm of the market
These days, there is an influx of investors in Blackstone. They invested another $44.8 billion in its various funds and investment vehicles during the third quarter, bringing the total to $337.8 billion over the past 12 months. This increased Blackstone’s assets under management (AUM) to $950.9 billion. AUM has grown by 30% in the last one year.
Blackstone has a duty-bearing AUM of more than $700 billion, an increase of 34% year-on-year. This enabled the alternative asset manager to generate fee-related income of $1.2 billion in the third quarter, or $0.98 per share, up 51% from the prior-year period. Meanwhile, distributable earnings, which include its net performance revenue as the funds meet their return objectives, totaled $1.4 billion, or $1.06 per share. Blackstone returned all that money to shareholders. It announced a dividend payment of $0.90 per share and repurchased 2 million of its beaten-down shares.
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A large driver of Blackstone’s rising AUM and fee-related earnings is the strong relative performance of its funds compared to the public stock and bond markets. While the traditional 60/40 portfolio (60% stock and 40% bond weight) declined 20% during the third quarter — its worst return in nearly 50 years — Blackstone has protected investor capital amid this decline. Most of its strategies have performed positively over the past 12 months. So more investors are handing over more of their capital to Blackstone.
expediting change of options
The turmoil in the public stock and bond market is prompting more investors to rethink their allocation strategy. Blackstone’s CEO, Steve Schwarzman, said on the third-quarter call that investors “have found it difficult to achieve their objectives by investing in traditional asset classes alone. This is why increasing allocation to LP (limited partner) options around the world” (ie private equity, real estate, hedge funds and infrastructure), particularly Blackstone.”
Options should continue to change rapidly in the years to come. Schwarzman noted on the call that:
recent research Morgan Stanley It is estimated that private market AUM will grow by 12% annually over the next five years. We shared developments in sectors such as infrastructure, real estate and private credit as investors seek yield and inflation protection. All areas of specific ability here at Blackstone. From a channel perspective, Morgan Stanley predicts the biggest growth among individual investors, with the allocation for options for high net worth investors more than doubling from 8% to 10% of their portfolios in five years. This represents a major paradigm shift when we identified another trillion dollar opportunity a decade ago.
Given Blackstone’s strong brand reputation to deliver results and products geared toward individual investors, its AUM could expand at an even faster pace in the future. This will support continued rapid growth in its fee-related earnings.
This would give Blackstone more money to return to shareholders. The company’s capital-lite model allows it to return 100% of its earnings to shareholders through dividends and share repurchases. As such, they should see higher dividend payouts to go along with value-enhancing share buybacks in the future. Add those cash returns to its earnings growth, and Blackstone could produce strong total returns from here, especially given this year’s stock price decline.
Big time earnings and upside potential
Blackstone returns all of its earnings to shareholders. While that strategy causes the dividend to decline and flow with its earnings, the payout has increased over the years as the company’s earnings grow. The upward trend should continue as Blackstone shifts towards its stronger brand and alternatives. With its stock declining sharply despite its continued success, it looks like an attractive option for investors looking for a lot of income and upside potential.
