Blackstone Group (BX -2.54%) has become a high-profile dividend stock in recent years. The leader in alternative asset management returns a significant portion of its distributable profits to investors via dividends. Over the past year, it has paid out over $5 per share in dividends, earning it an annualized return of over 6%. It’s multiples above the S&P500current dividend yield of 1.8%.
A key driver of Blackstone’s ability to pay a large dividend is its large and growing pool of assets under management (AUM). As AUM increases, Blackstone can earn more recurring management fees and capture the additional upside potential of performance income as its investment funds meet their performance targets. The company recently took a big step to increase its assets under management, which could pay big dividends in the future.
Add more assets into the fold
Blackstone forms a strategic partnership with Resolution Life, a leading global life insurance and annuity consolidation company. The alternative asset management giant is investing $500 million in Resolution Life as part of that company’s plan to raise $3 billion in new equity to pursue its acquisition strategy. Blackstone will become Resolution Life’s investment manager for certain areas, including private credit, immovableand asset-based financial markets.
Blackstone will initially manage up to $25 billion of Resolution Life’s existing private assets in the first year. Meanwhile, this number will increase as Resolution Life enters into new transactions and investments deployed in asset classes managed by Blackstone. Blackstone sees it soar to more than $60 billion over the next six years.
This will provide Blackstone with a growing stream of recurring management fees as it manages these assets for Resolution Life. It will also strengthen Blackstone’s ability to capitalize on attractive investment opportunities as it will have a perpetual source of capital.
Improve perpetual revenue streams
Blackstone makes a lot of money managing assets on behalf of clients. The company had $940.8 million in assets under management at the end of the second quarter, up 38% year-over-year, of which $683.8 million is remunerated, an increase of 37%. The increase in AUM helped boost Blackstone’s fee-related revenue by 45% in the second quarter to $1 billion.
It generated more than $4.8 billion in fee-related revenue over the past year. Add to that its performance earnings, and Blackstone’s total distributable earnings were $7.8 billion ($6.03 per share) over the past 12 months. She returned all that money to shareholders through her dividend and share buybacks.
The company has seen a surge in inflows over the past year as more investors are allocating capital to alternative investments, given the volatility of the stock and public bond markets. Inflows totaled $88.3 million in the second quarter alone, the company’s second-best quarter and equal to its entire assets under management at its IPO. Meanwhile, AUM grew by $339.7 billion over the past year.
While billions of dollars have flowed into Blackstone over the past year, the company has also seen outflows as funds mature and it returns capital to investors. The firm’s assets under management saw outflows of $38 billion in the past year, meaning it no longer earns fees on that capital.
Although net inflows more than offset outflows, Blackstone focused on growing its perpetual sources of capital to further mitigate the effect of outflows. This strategy helped fuel a 110% increase in perpetual capital AUM to $355.9 million in the second quarter.
These perpetual sources of capital provide it with an even more sustainable supply of recurring management fees, since Blackstone will ultimately not need to return this capital to investors. With the Resolution Life deal adding more than $60 billion to Blackstone’s perpetual capital over the coming years, it will provide another huge and growing source of stable income that the company can use to pay dividends.
Improving the ability to pay dividends
Blackstone’s asset management business provides it with plenty of recurring revenue. Meanwhile, he earns extra money from performance revenue. While performance income rises and falls with his investment successes, his paid income should continue to grow, especially as his sources of perpetual capital increase. This should continue to raise the floor under Blackstone’s dividend, allowing it to continue to make large payouts to shareholders and further strengthen its appeal as an income stock.
