High Dividend 50: Blackstone Group

Published on April 7th, 2022, by Prakash Kolli

High yield stocks with dividend yields above 5% are appealing to income investors. However, not all high dividend stocks are created equal. Some have secure dividend payouts. However, others are in questionable financial condition, leaving shareholders vulnerable to a dividend cut in a downturn.

With this in mind, we created a full list of high dividend stocks.

You can download your free full list of all high dividend stocks with 5%+ yields (along with important financial metrics such as dividend yield and payout ratio) by clicking on the link below:

You can download your free full list of all high dividend stocks with 5%+ yields (along with important financial metrics such as dividend yield and payout ratio) by clicking on the link below:

Blackstone has been a high dividend yield stock for much of the past decade. The company has an excellent reputation and has grown into the most significant global alternative asset manager. In addition, the dividend yield is now over 5.0%.

Business Overview

Blackstone Group was founded in 1985 and is headquartered in NYC. Blackstone’s CEO is Stephen Schwarzman, one of the co-founders. The other co-founder was Peter Peterson. Today, Blackstone is the world’s largest alternative asset manager. The firm focuses on private equity, real estate, credit & insurance, and hedge fund solutions serving mostly institutional (87%) and high net worth retail clients (13%).

In private equity, Blackrock owns or has an investment in 107 companies. The list includes companies like Ancestry, Refinitiv, Bumble, SERVPRO, Oatly, Great Wolf Resorts, Bourne Leisure, Crowne Resorts, Spanx, etc.

In Real Estate, the firm has about a $514 billion real estate portfolio. Blackstone operates through the Blackstone Real Estate Income Trust (BREIT) to acquire income-generating assets and Blackstone Mortgage Trust (BXMT) to originate debt. The company also invests in infrastructure.

In credit, the firm provides loans, direct lending, mezzanine financing, CLO, etc. In addition, Blackstone works with insurers to invest their capital in meeting their obligations.

In addition, Blackstone markets hedge fund portfolios.

Total assets under management (AUM) were $880.9 billion at the end of 2021. The firm’s AUM at the end of 2021 was divided into $279 billion in real estate, $261 billion in private equity, $259 billion in credit and insurance, and $81 billion in hedge fund solutions. Total fee earning AUM was $650 billion, and perpetual capital AUM was $313.4 billion at the end of 2021. Revenue is derived from management and advisory fees, incentive fees, investment income, and interest and dividends.

Total revenue was approximately $22,178 million in 2021 and the past 12 months.

Source: Investor Relations

Growth Prospects

Blackstone is an alternative asset manager focusing on less-liquid assets. Unlike traditional asset managers, the firm does not emphasize equity, fixed income, or cash assets. Instead, it emphasizes private equity, real estate, credit, and hedge funds. Since its inception, the firm has successfully grown by gathering assets by serving institutional clients such as pension funds, university endowments, insurance companies, sovereign wealth funds, family offices, and high net worth investors.

Along these lines, alternative capital is attractive for institutions with long time horizons seeking diversification. For instance, insurance companies may have years of planning periods. Similarly, university endowments have decades-long planning cycles. Furthermore, institutions and high-net-worth individuals desire diversification of their wealth.

Blackstone can deploy more capital by generating inflows due to its competitive advantages of reputation, performance, and broad product portfolio. For example, the firm generated inflows of $270.5 billion in 2021 but only deployed $144.4 billion for the year. This difference means the company is raising more capital than it can deploy despite rising competition.

In addition, the deployment of capital allows the firm to improve performance and set the stage for future inflows. The excess capital is effectively dry powder. As a result, Blackstone can execute deals when other firms cannot during times of economic distress.

Competitive Advantages

Blackstone has three competitive advantages: reputation, performance, and a diverse product portfolio. All three attributes are needed for an alternative asset manager to grow.

Many alternative assets have lock-up periods ranging from months to years and are thus ill-liquid. As a result, institutions rely on the manager to be good stewards of their capital. This fact requires alternative asset managers to have excellent reputations. Blackstone has a respected brand with employees with years of experience and a solid reputation. Hence, the firm tends to have a place at the table with institutions seeking to invest capital.

Additionally, Blackstone has proven performance over many years. Success as an alternative manager takes time to build. The firm has built success since 1985 and has leveraged this history to gather assets.

Lastly, it has built scale with an expansive product portfolio covering significant categories of alternative investments. This point permits investors to access different types of investments suitable for their investment needs. Blackstone can provide investors with single to multiple ones. Scale also leads to operational and cost efficiencies.

Dividend Analysis

Blackstone pays a solid dividend yield of approximately 5.5%. The forward dividend rate is $4.06 per share. The forward dividend yield is greater than the 5-year average of about 5.07%. It is also more than three times the average dividend yield of the S&P 500 Index.

Blackstone cannot be considered a long-term dividend growth stock. The lumpy nature of its revenue and earnings makes the dividend rate erratic. However, the dividend has tended to trend up with time.

Blackstone’s dividend growth rate has been about 19.13% in the past decade and approximately 16.55% in the trailing 5-years. The firm increased the dividend by 33% in January 2022 and 55.7% in October 2021. However, it was decreased (-14.6%) in July 2021, demonstrating the dividend’s volatile nature.

The company’s dividend is safe from the perspective of earnings and free cash flow (FCF), but the payout ratio is concerning. The payout ratio is ~85% based on the forward dividend rate and estimated 2022 earnings per share of $5.43. In addition, Philip Morris generated an FCF of approximately $3,892 million in 2021, and the dividend required only $2,499 million. Therefore, the dividend-to-FCF ratio was reasonable at ~64%.

Blackstone has a conservative balance sheet. At the end of 2021, the company had ~$2,120 million in cash, $4,762 million in marketable securities, and $8,738 million in net accrued performance revenue. Short-term debt was only $206 million, and long-term debt was $7,748 million. Furthermore, the current credit rating is A+ / A+, an upper-medium investment-grade credit rating by S&P Global and Fitch.

Final Thoughts

Blackstone is not a company most investors think of for high yield or income. However, alternative asset management has proven lucrative, and the company has executed well. Today, it is arguably the go-to firm for institutions and high-net-worth investors seeking diversification.

Blackstone’s dividend yield has been around 5%+ for the past decade. But investors should be aware of the dividend’s high payout ratio and volatile nature. The firm’s earnings and thus dividend rate will fluctuate with economic conditions. On the other hand, the conservative balance sheet should provide some comfort.

Blackstone is an acceptable stock for investors seeking a high dividend yield and income.

If you are interested in finding more high-quality dividend growth stocks suitable for long-term investment, the following Sure Dividend databases will be useful:

The major domestic stock market indices are another solid resource for finding investment ideas. Sure Dividend compiles the following stock market databases and updates them regularly: