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3 Reasons Why This Is a Retiree's Dream Stock

By Dave Kovaleski - Mar 4, 2021 at 10:29AM

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It has one of the highest dividend payouts out there and is a leader in its market.

A recent survey by Allianz Life Insurance of North America said that 68% of Americans have retired earlier than they expected, up from 50% a year ago. The primary reasons were unexpected job loss and healthcare-related issues, both of which were consequences of the pandemic.

An early, unexpected retirement is all the more reason to reexamine your investment portfolio to make sure it is still serving your needs. One stock that you may want to include in your retirement basket is BlackRock (BLK -1.23%). Here are three reasons why the largest asset manager in the U.S. is a retiree's dream stock.

Woman holding up three fingers

Image source: Getty Images.

1. It has a solid, sustainable dividend

Dividends can help diversify and boost retirees' income streams. BlackRock has an excellent and sustainable dividend that it has increased for the past 12 years straight. BlackRock raised its dividend 13.8% in January to $4.13 per share at a robust yield of 2.4% at Thursday morning's prices, which is higher than the S&P 500 average yield around 1.6%. It has a payout ratio of about 45%, which means less than half of earnings go to pay the dividend -- a sustainable figure.

Because of its high share price -- almost $700 as of Thursday morning -- BlackRock has one of the largest payout amounts on the market at $4.13. Over the past five years, the dividend has increased 80.3%. So, if you owned 200 shares of BlackRock, you'd have $826 in your pocket every quarter and $3,304 for the year. That's a nice chunk of change that should continue to rise.

2. It has competitive advantages to stay on top

BlackRock is the largest asset manager in the United States, with $8.6 trillion in assets under management. Over the past 10 years, the stock has been great to investors, posting an average annual return of 14.2%, beating the S&P 500. Last year, BlackRock blew away the benchmark with a 47.2% return.

A chief reason for its success is that BlackRock has been a dominant player in the fastest-growing segment of the investment management business over the past decade: exchange-traded funds, or ETFs.

Since 2010, assets in ETFs have quadrupled in the U.S. to about $5 trillion, and BlackRock is the market leader with about 36% of the worldwide total, ahead of Vanguard at about 25% and State Street at roughly 14%.

But ETFs are just scratching the surface of their potential. Recent studies anticipate booming growth for ETFs to over $50 trillion in worldwide assets by 2030. That puts BlackRock at the forefront of this continuing investment trend.

BlackRock is also out in front of the other big investment trend of the next decade -- environmental, social, and governance, or ESG, investing. Currently, ESG criteria go into about 33% of the $51 trillion that's invested in the U.S. -- up 42% from two years ago. By 2025, ESG could double from current levels as more companies and governments embrace measures to prevent climate change.

BlackRock CEO Larry Fink sees climate change as the issue of our times as world economies transition to net zero emissions. He made clear in missives to both CEOs and investors that BlackRock will only be investing in firms that disclose how their business plans are compatible with a net zero emissions economy. This bold declaration puts BlackRock in the vanguard of this transition as well.

3. It is efficient, with high margins

BlackRock is in great financial shape to continue to invest in its growth. It is extremely efficient, with an operating margin of 41.3% in the fourth quarter, up from 38.7% in the fourth quarter of 2019. BlackRock has a solid return on equity of 14.5% and lots of cash, with $8.5 billion in hand and $4.3 billion in free cash flow.

That cash has enabled BlackRock to not only pay back investors in dividends and share repurchases, but to invest in its future success. Earlier this year it acquired Clarity AI, a sustainability analytics company that optimizes portfolios, and in November it bought Aperio, which runs index equity separately managed accounts for high-net-worth individuals and provides portfolio solutions to wealth managers.

These factors not only make BlackRock a good investment now for its high dividends, but in the future, as it should deliver robust returns over the long term or whenever retirees need it.

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Stocks Mentioned

BlackRock, Inc. Stock Quote
BlackRock, Inc.
$629.12 (-1.23%) $-7.80
State Street Corporation Stock Quote
State Street Corporation
$64.49 (-1.10%) $0.72

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