If you're a retiree, you probably want two things in your investments: steady returns and reliable dividend payouts. In this volatile market, those two requirements may even be more critical for many retirees. BlackRock (NYSE: BLK) delivers on both of those fronts. The world's largest asset management firm -- with $7.3 trillion in assets under management -- boasts strong returns and a solid dividend. Let's dig deeper into what makes BlackRock a a great stock for retirees.
ETF market leader
First, let's look at the returns. BlackRock's stock price is up 18% this year, and over the past 10 years it has an annualized return of more than 13%. In both cases, it has outperformed its industry and the S&P 500. The firm has steadily increased its return on equity over the past 10 years, averaging about 13% per quarter over the past five years.
BlackRock is coming off a strong second quarter. Earnings rose 21% to $1.2 billion, earnings per share (EPS) climbed 22% to $7.85, and revenue was up 4% to $3.6 billion year over year. Most of the earnings came from investment advisory and administration fees, which generated about $3 billion of the company's $3.6 billion in revenue in the quarter. BlackRock is the world's largest provider of ETFs, with $2.1 trillion in ETF assets, up from $1.8 trillion in the first quarter. It had $50.9 billion in net inflows into its ETFs in the second quarter, which is just over half of the $100 billion in net inflows the company had in the second quarter. The inflows were buoyed by a record $57 billion into its fixed-income ETFs, offsetting $14 billion in net outflows from its equity ETFs.
As the market leader in the fastest-growing segment of the asset management industry, ETFs, BlackRock is well positioned to continue its growth. The company has about 40% of the $5.3 trillion ETF market, ahead of Vanguard (about 25%) and State Street (about 16%). In 10 years, the ETF market is expected to grow tenfold to $50 trillion. Retirees can expect to see BlackRock continue to grow with the ETF market, even more so when interest rates start to tick up.
BlackRock has increased its dividend every year since 2003. Over the past five years alone, the company has raised the dividend by 66%. The yield -- dividends as a percentage of share price -- is 2.5%, which is above average for large companies. Meanwhile, BlackRock's payout ratio -- the percentage of annual earnings that goes toward the dividend -- is 20.8%. A payout ratio that low is great to see because it tells us the company is not overextending to pay its dividend and has more of its earnings available for investments in technology, acquisitions, and new products.
BlackRock CFO Gary Shedlin said the company is committed to maintaining the dividend, just as it always has. "Our capital management strategy remains, first, to invest in our business and then return excess cash to shareholders through a combination of dividends and share repurchases," Shedlin said on the second-quarter earnings call.
BlackRock is a market leader that's focused on the sweet spot of the market with a healthy (and well-supported) quarterly payout. Sounds like a retiree's dream stock.
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