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Now for today’s piece:

BlackRock – A Full Breakdown

Key Metrics

EV/EBIT – 17.6x

D/E – 0.17 (very favorable)

10-Year Dividend Growth Rate – 12.52%

Dividend Yield – 2.64%

Dividend Payout Ratio – 57.5%

FCF Yield – 3.9%

Earnings Per Share (TTM) – $33.96

Highlights

• BlackRock is the largest asset manager in the world with over $8.59 trillion in assets under management.

• BlackRock is invested across nearly every asset class that exists, including stocks, bonds, real estate, commodities, and cash.

• BlackRock has been met with criticism for its role in environmental, social, and governance issues.

Company Profile

BlackRock is a multinational investment management and advisory company. It provides investment products and advising services for institutional and retail investors. The company offers investment options across various asset classes: stocks, bonds, real estate, commodities, and cash.

SWOT Analysis

Strengths

Large Assets Under Management

BlackRock is the largest asset manager in the world with over $8.59 trillion in assets under management (AUM). Its next closest competitor is Vanguard with $7.29 AUM as of January 2022. Vanguard is a private company so it’s a little harder to find more up-to-date data. Funny enough, BlackRock has a 13% ownership stake in Vanguard so even if they prosper, Blackrock will as well.

A large AUM is great for BlackRock’s business, which made $17.87 billion from the fees it charged last year. Fees are a crucial component of BlackRock’s business, and from my quick “napkin math” I can tell that BlackRock charges about a 0.2% fee for its investment products. As AUM grows, BlackRock will collect more revenue without having to raise fees.

Diversified Investment Strategies

BlackRock is invested across nearly every asset class that exists.

They have funds for:

• Stocks

• Bonds

• Real Estate

• Commodities

• Cash (think Money Market Accounts)

Ideally when one asset class struggles, another should compensate.

Strong Reputation In The Industry

BlackRock is highly regarded as one of the best companies in the USA. Here are some of its recent accolades:

• Named one of America’s Most JUST Companies, according to CNBC and JUST Capital (2022)

• Awarded perfect score for the 11th consecutive year in the Human Rights Campaign's Corporate Equity Index

• Included in Dow Jones's index of the most sustainable companies in North America

• Rated one of the 100 Most Sustainable U.S. Companies by Barron’s

• Named one of the Wall Street Journal’s best-managed companies of 2019

Weaknesses

Dependence On Market Performance

Due to the nature of BlackRock’s business, it is heavily dependent on the state of global markets. If the world economy were to slip into a recession, asset prices would likely decrease.

As a result, BlackRock’s AUM would decrease, and the fees it collects would net them less money due to the decline in asset prices.

Criticism Of Its Role In Environmental, Social, And Governance Issues

In 2019, CEO Larry Fink unleashed what was a radical idea at the time – ESG investing. ESG stands for Environmental Social Governance and is one of the most polarizing topics in business. Fink has been met with backlash from investors concerned with the effect on profit margins that ESG brings. ESG investing could affect BlackRock’s bottom line if investors were willing to avoid BlackRock due to its stance on ESG.

Opportunities

Increasing Demand For Socially Responsible Investing

Over the past few years, investors have seen the rise of Environmental Social Governance (ESG) style investing. What may be a weakness might also be a strength as the world becomes more environmentally and socially conscious. Investors with a tendency to look for ESG-related investments may flock to BlackRock’s offerings to align with their beliefs.

The Growing Popularity Of Exchange-Traded Funds

Since its inception in 1993, Exchange-Traded Funds (ETFs) have grown in popularity. In 2000, there were 80 ETFs available to invest in. Fast forward to today and there are about 2,700 ETFs to choose from. ETFs are BlackRock’s bread and butter. The company has 73.9% of its AUM held in ETFs and these ETFs are a popular choice for investors wanting a passive approach to investing. BlackRock is home to some of the most widely held ETFs, some of which are:

• IVV - iShares Core S&P 500 ETF

• IEFA - iShares Core MSCI EAFE ETF

• IEMG - iShares Core MSCI Emerging Markets ETF

• IWM - iShares Russell 2000 ETF

If you’re looking for a specific ETF, chances are BlackRock has it. Their ETFs have relatively low fees as well.

Expansion Into New Markets

As of January 2023, emerging Asian markets such as China and India accounted for less than 10% of BlackRock’s AUM. If these economies keep growing, their asset prices will likely follow suit. BlackRock would benefit because its AUM would grow and it’d be able to attract investors from around the globe.

Threats

Regulatory Changes

As with many companies of this magnitude, BlackRock faces the threat of regulatory changes. A company as widespread as BlackRock could be subject to antitrust regulation and may be forced to break up its business.

Economic Downturns

As we touched on before, an economic downturn would drastically affect BlackRock’s business. While they are diversified across many asset classes, that doesn’t mean they’re immune to an economic downturn. Multiple asset classes could decline simultaneously and BlackRock’s AUM would take a beating. In turn, the company wouldn’t collect as much from fees.

Competition From Other Asset Managers

Competitors such as Vanguard, Invesco, or T. Rowe Price could take market share away from BlackRock. Each of these companies offers similar products and potentially could compete on fees. Will more customers flock to these companies in the future?

Financial Performance

Key Financial Metrics And Ratios

Highlights from Q4 earnings:

• Revenue declined 8% year over year

• AUM declined 14%, driven by lower asset prices

• $393 billion of full-year long-term net inflows (4% growth Y/Y)

• $4.9 billion returned to shareholders in 2022 from dividends and share repurchases

• 14% decrease in full-year operating income

Revenues and AUM declining is understandable given the stock, bond, and real estate decline of 2022. It's a welcome sight to see inflows growing amidst market volatility. Shareholders were also handsomely rewarded with share repurchases and dividends.

The Dividend Breakdown

BlackRock’s 10-year Dividend Growth Rate (CAGR) is 12.52%, much better than the Financial sector median of 8.14%. It is worth mentioning that BlackRock raised its dividend a measly 2.5% in the most recent announcement. Are they being cautious about the near-term macro environment or is there trouble ahead for the company?

Their Dividend Payout Ratio is 57.5%, which is a little on the high side in my opinion. I like to target companies with a Dividend Payout Ratio of less than 60% and BlackRock is creeping up on that threshold. After seeing the small dividend hike and bleak economic outlook, I’ve decided I need a bigger margin of safety than usual.

Its Dividend Yield is 2.64%, which is higher than its 4-year average yield of 2.56%. Compared to the median yield of 3.06% in the Finance sector, BlackRock’s 4-year average yield is slightly lower.

Lastly, BlackRock has been paying a dividend for 19 years & has raised it for 14 consecutive years.

The Thesis

BlackRock is the world’s largest asset manager. It holds a diversified portfolio of assets and provides investment products for institutional and retail investors. The company makes revenue from fees and advising and should benefit from this business model as asset prices appreciate in value. BlackRock has historically rewarded shareholders with dividends and share repurchases and should continue to do so in the future.

BlackRock's diversified asset holdings, vast client base, simple fee-based structure, product offerings, and room for global expansion should fuel its future growth.

Valuation

Blackrock is trading at a 17.9x EV/EBIT ratio.

Here’s how it stacks up to competitors:

BlackRock is trading at a significantly higher EV/EBIT multiple than most of its competitors, but it is also estimated to grow its EBIT more than the majority of its competitors.

The industry average EV/EBIT multiple is 15.2x and BlackRock is currently exceeding that.

BlackRock is trading more in line with competitors on a forward EV/EBIT basis:

I’m interested in grabbing shares at $509.38

How did I settle on this number?

I want to pay 12x EV/EBIT and currently, BlackRock is trading at a 17.6x EV/EBIT multiple with a market cap of $113 billion.

Going from 17.6x to 12x is a 31.82% reduction and when I applied that reduction to the market cap of $113 billion, I found a new market cap of $77.043 billion.

Then I divided the new market cap of $77.043 billion by the number of outstanding shares, 151,249,983.

This came out to a price of $509.38 per share.

I would start a position here and buy significant dips if the offer presented itself.

Final Thoughts

BlackRock is the largest asset manager in the world with over $8.59 trillion in assets under management (AUM). It is invested across nearly every asset class, has a strong reputation in the industry, and charges about a 2% fee for its investment products. However, it is heavily dependent on the state of global markets and has been met with criticism for its role in environmental, social, and governance issues.

It has the opportunity to benefit from the increasing demand for socially responsible investing and the growing popularity of exchange-traded funds. But on the other hand, it faces threats from regulatory changes, economic downturns, and competition from other asset managers.

The future of BlackRock looks bright in my opinion. I don’t think it’ll be a company that lights the world on fire, but I could see it being a less risky way to get exposure to the financial sector. The company has quickly become the world’s largest asset manager and provided great returns to shareholders. I could think of worse places to park my money.

One thing I’ll keep my eye on is the Dividend Payout Ratio. 57.5% is higher than I’d like to see but that can be attributed to the company’s fees bringing in less revenue amidst lower asset prices. I’ll be looking for revenues to expand as the market rebounds and the Dividend Payout Ratio should decrease as a result.

What do you think about BlackRock?

Do you own it? Would you like to? Would you avoid it like the plague?

Let me know by hitting me up on Twitter or replying to this email!

I hope you liked this breakdown. If you did, please tell a friend about this newsletter!

Until next time,

Dr. Dividend

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Links And Memes

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Disclosure: The contents of this newsletter are in no way intended to provide financial advice. I am not a licensed Financial Advisor. The opinions expressed in this newsletter are for informational, educational, or entertainment purposes only. I may buy or sell any positions mentioned at any time. I do not and will not encourage you to buy any specific investment security. Everyone has different investment goals and finances, and what works for me may not work for you. Investments of any kind carry risks that may result in partial or total loss of capital. You should contact a professional and conduct thorough due diligence before making any investing-related decisions. This newsletter may contain affiliate links and I may receive a commission from the usage of any affiliate links at no charge to the user.