The world's largest asset manager, BlackRock (BLK 0.29%), has one of the highest dividend payouts you'll see on the market.
BlackRock pays out an astronomical $5 per share dividend per quarter, or $20 per share per year. Why is its dividend so high, and is it a good stock to own for income investors?
A good yield and a high share price
There are two primary reasons BlackRock's dividend is so high, and the first is simply its stock price. BlackRock is currently trading for around $695 per share, which is a pretty high at a per share level. As the dividend yield is the percentage of the stock's current price, the higher the share price, the higher the dividend will be.
Now, that doesn't necessarily mean that a big quarterly payout makes for a great dividend stock. A lower-priced stock, like Citigroup, for example, might be a better option because, while it pays a quarterly dividend of only $0.51 per share, its stock price is only $52. So you could buy nearly 14 shares of Citigroup for roughly the same price as one share of BlackRock, and that would net you $7.14 in dividend payouts per quarter and $28.56 annually -- more than the payout received from owning a single share of BlackRock.
That is because Citigroup has a higher yield than BlackRock, 3.96% versus 2.94%, respectively. While Citigroup has one of the best yields in the sector, BlackRock's is not too shabby. At 2.94%, it is slightly below the average in the financial sector, which is 3.18%, but it is much higher than the average yield on the S&P 500, which is about 1.68%.
However, if you look at the five-year average yield for BlackRock, it is 2.58%, which is approximately 13% higher than the sector average.
So, the reason that BlackRock's payout is so high has to do with its high share price and competitive dividend yield. But is it a good dividend stock?
Is BlackRock a buy?
A few other factors go into evaluating a good dividend stock. One is its track record and commitment to the dividend. BlackRock has increased its annual dividend payout every year for the past 13 years. In the first quarter, it bumped it up again, from $4.88 per share to $5.00, signaling that it will raise its dividend for the 14th straight year in 2023.
"We also remain committed to systematically returning excess cash to shareholders through a combination of dividends and share repurchases and returned a record $4.9 billion to shareholders in 2022, including $1.9 billion of share repurchases, an increase of over 30% from 2021," Chief Financial Officer Gary Shedlin said on the fourth-quarter earnings call.
One minor concern with BlackRock is its payout ratio, which is about 55% -- meaning it pays out 55% of its earnings toward the dividend. That is a bit on the higher side, but it is because BlackRock has just endured one of its most difficult years in more than a decade.
BlackRock, as the world's leading manager of mutual funds and exchange-traded funds (ETFs), is going to struggle in a bear market, as many of its fees are based on asset levels and market performance. But as the market leader, it should surge back up as the market improves, and so will its earnings. Its dividend should be rock solid and sustainable.
Overall, BlackRock pays out a high dividend, and it is also a good dividend stock. The two don't always go hand in hand, but in this case, they do.
Citigroup is an advertising partner of The Ascent, a Motley Fool company. Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
BlackRock (BLK) indeed stands out with its substantial dividend payout, a topic I've delved into extensively. The core driver behind BlackRock's high dividend revolves around its stock price and competitive dividend yield. As of recent data, BlackRock's stock trades at around $695 per share, which significantly impacts its dividend yield. Dividend yield represents the percentage of the stock's current price paid out as dividends. Therefore, the higher the stock price, the higher the dividend payout appears.
However, a substantial dividend alone doesn't necessarily designate a stock as an ideal dividend investment. This is where comparative analysis comes in. For instance, while BlackRock's quarterly dividend per share stands at an impressive $5, a lower-priced stock like Citigroup, trading at around $52 per share, pays a quarterly dividend of $0.51 per share. This yields around $7.14 in quarterly payouts and $28.56 annually for the same investment amount that would buy one share of BlackRock.
Citigroup's higher yield of 3.96% compared to BlackRock's 2.94% makes it an attractive alternative for income investors. Although BlackRock's dividend yield is slightly below the financial sector's average of 3.18%, it significantly surpasses the S&P 500's average yield of about 1.68%. Additionally, when examining BlackRock's five-year average yield of 2.58%, it's approximately 13% higher than the sector average, indicating consistent and competitive payouts over time.
A crucial aspect when evaluating a dividend stock is its track record in dividend payments. BlackRock boasts an impressive streak, having increased its annual dividend payout for the past 13 consecutive years. This commitment is further emphasized by their recent announcement of a dividend increase in the first quarter, signaling a 14th consecutive annual increase in 2023.
Regarding concerns about its sustainability, BlackRock's payout ratio, which stands at around 55%, might appear slightly high. However, this figure needs contextualization. BlackRock faced a challenging year, but its dividend payout remains solid and sustainable. As the world's top manager of mutual funds and ETFs, it might endure challenges in a bear market due to its fee structure based on asset levels and market performance. Nonetheless, its market leadership positions it for a rebound as markets improve, which would subsequently boost its earnings and, consequently, its dividends.
In summary, BlackRock's high dividend payout is underpinned by its stock price and competitive dividend yield. Despite a slightly elevated payout ratio and potential market challenges, its commitment to consistently increasing dividends, combined with its market leadership, positions it as a strong dividend stock choice.
While Citigroup emerges as an appealing option due to its higher yield, investors should weigh BlackRock's track record, market leadership, and commitment to dividend growth when considering it as a dividend stock for their portfolio.
