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BlackRock Earnings Grew by Over 40% in the Fourth Quarter

By J. Alexander Ortner - Updated Jan 22, 2020 at 12:48PM

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iShares fixed-income ETFs continue to lead BlackRock’s rise in assets under management.

Last week, BlackRock (BLK 0.21%) posted a blowout quarter ended Dec. 31 with a 40% rise in quarterly earnings. Thanks to BlackRock's lineup of fixed-income exchange-traded funds, its growth path keeps on chugging as investors gravitate toward its iShares products. BlackRock investors liked the news, and shares have risen 4% higher since the earnings were released Jan. 15.

Strength in ETFs

The world's biggest asset manager amassed more than $7 trillion in assets in its fourth quarter. Fixed-income ETFs helped lift the investment firm's profitability by logging $428 billion in net inflows. The trend looks to continue as investors pour new money into iShares ETFs at the expense of traditional mutual funds. Even as equities hit new highs, BlackRock investors continue to favor its vast lineup of bond ETFs.

ETF trend line going up.

Image Source: Getty Images.

According to BlackRock, fourth-quarter net income grew to $1.3 billion, or $8.29 per share, up 43% from the same quarter last year. CEO Larry Fink said, "Full-year flows were positive across product type and investment style, including records in cash, factors and illiquid alternatives."

In step with the Dow Jones Industrial Average hitting new all-time highs, BlackRock will keep earning more revenue from the asset management of these funds. When the underlying value of an ETF's holdings increases, revenue from the asset management fee also grows. The BlackRock iShares business charges very reasonable management fees of just 10 basis points or less. As more cash is invested in iShares products, BlackRock earns more revenue, and the net asset value of the ETF increases. BlackRock's iShares ETFs recorded $75.2 billion net inflows in the quarter, continuing the asset manager's superiority within the ETF industry.

A stable dividend

BlackRock's stock currently pays investors a 2.47% dividend yield. BlackRock is still seeing a respectable 7% growth in full-year diluted EPS from last year. I like to see dividend stocks that are still earning top-line revenue by at least 5% to 10%.

The asset management firm returned more than $1.7 billion in dividends and roughly $2.8 billion in share repurchases to shareholders. BlackRock management still expects fees to grow by 5% annually over the next few years. Investors should watch the fee-based revenue as an indicator of future dividend changes. If major stock indices drop in value, the assets under management for iShares could shrink. On the flip side, as new stock market highs continue to make headlines, retail investors are likely to purchase more money management products such as the iShares fixed-income ETF product line. BlackRock investors who own it for the dividend should pay close attention to fund flows and current market trends within the ETF business.

Expect continued growth within fixed-income ETFs

With interest rates lower today than they were at this time last year, investors are continuing to look for alternatives to typical cash holdings. The current interest rate conditions are likely to favor asset managers like BlackRock that provide ETFs. Asset managers are seeing more growth in bond ETFs and alternative cash management tools. With no transaction costs at online brokerages, investors are increasingly turning to ETFs as a simple, low-cost way of investing.

BlackRock investors will remain happy as financial conditions keep favoring this asset manager. Shareholders can earn 2.47% in dividend yield while enjoying the consistent growth in stock price driven by BlackRock's swelling asset base.

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