Higher dividend yields
BlackRock (BLK) has historically paid out the major portion of its profits in dividends. The company increases its dividend per share in-line with its performance. It has approved a 5% increase in its quarterly dividend per share to $2.29.
In 4Q15, BlackRock declared a total dividend per share of $2.18, up by 13% compared to the prior year’s quarter. This translates to an annualized dividend yield of 2.8%, which is higher than the industry average of 1.9%. In comparison, BlackRock’s peers have the following yields:
Together, these companies form 1.7% of the SPDR S&P 500 ETF (SPY).
If the company continues to deliver double-digit growth in EPS (earnings per share), it will mean higher dividends per share. BlackRock’s share price will also be supported by above-industry-average dividend yields.
BlackRock has repurchased $1.1 billion worth of its own stock over the past four quarters. In 3Q15, the company repurchased stock worth $275 million. It has consistently reduced its weighted average diluted number of shares to 168.6 million as of December 31, 2015, from 170.4 million on December 31, 2014.
BlackRock reported a fall of 2% in net income to $801 million in 4Q15 from last year’s $821 million. Considering its double-digit EPS growth due to its increased focus on its iShares and Retail clientele, the stock could continue to trade at around a 16x price-to-earnings ratio. This could result in a 7%–10% appreciation in the stock and a 2%–3% dividend yield.
Over the past six months, the stock has fallen by 16% due to macroeconomic factors and the slowing economy. However, BlackRock’s performance has been more resilient in the wake of the new client assets it continues to attract across product offerings.
BlackRock’s ownership pattern, dominated by mutual funds, financial institutions, and ETFs, reflects the stability investors see in the stock’s performance.