Summary
- BlackRock, Inc. is the global leader in asset management. The company is also the global leader in ETFs.
- BlackRock is currently yielding over 3% and has raised the dividend for 10 straight years.
- The dividend is well covered from the perspective of EPS and FCF. Total debt also does not pose a significant risk to the divided.
- BlackRock's is trading below its longer term average valuation multiples due to market volatility and industrywide fee rate compression.
- But BlackRock has demonstrated long-term ability to generate positive net inflows that should lead to long-term future growth.
Thesis
BlackRock, Inc. (BLK) is one of three asset managers that I own along with T. Rowe Price Group, Inc. (TROW) and Lazard Ltd. (LAZ). I have the first two in my large-cap dividend growth portfolio. BlackRock is trading at about $424 per share down from its peak of almost $600 per share in early 2018. BlackRock’s stock price traded down most of 2018 and is now trading at near the price in early 2019 due to current market headwinds. As an asset manager, BlackRock’s top line is sensitive to market volatility. Furthermore, asset managers are facing an industrywide trend for fee rate compression. But BlackRock, is the global market leader in passive investing, and AUM continues to increase at a good clip that is at a rate greater than the company’s peers. The stock is trading at a P/E (FWD) of ~15 based on consensus 2019 EPS. This is lower than the broader market average of 21.9 and the 5-year historical average of about 18. This combination of market leadership, undervaluation, and over 3% dividend yield makes BlackRock a buy.
Source: pionline.com
Overview of BlackRock
BlackRock was founded in 1988 by eight partners and went public in 1999. The company is essentially still run by several of the founding partners including Larry Fink (Chairman and CEO), Rob Kapito (President), Ben Golub (Chief Risk Officer) and Barbara Novick (Vice Chairman). The company made two major acquisitions that transformed its business and made it the largest asset manager in the world. These were Merrill Lynch Investment Management (2006) and Barclays Global Investors (2009).
Today, BlackRock is the largest asset manager in the world. BlackRock is focused on institutions and passive funds. The company had $6.84 trillion in assets under management at end of Q2 2019. It offers diverse mix of investment products including equity, fixed income, multi-asset, alternatives, and cash as seen in the chart below. Currently, BlackRock has over four thousand funds. Investment products are also divided into active and passive strategies. BlackRock’s clients include institutional, retail and iShares ETS investors. The company has a global presence but the majority of AUM and revenue is from the Americas. The crown jewel of BlackRock’s investment product line is the iShares ETF platform which has a leading global and U.S. market share. The leading market position and brand strength of iShares combined with the trend toward more passive investing gives BlackRock a significant advantage compared to its competitors.
