With the conflict in Ukraine, continuing pandemic concerns, elevated inflation, and the prospects of a global recession weighing on investors' minds, major market indices have tumbled in 2022. The S&P 500 index has fallen 18.8% so far this year.
Arguably no industry has been hit harder in the near term by the current bear market than the asset management industry. But BlackRock (BLK), the king of the industry, looks positioned to come out of the market downturn stronger than ever. Let's take a look at the company's fundamentals and valuation to unpack why it could be a great pick for income investors over the long run.
Net inflows into BlackRock's funds during a bear market
With just under $8 trillion in assets under management (AUM) as of Sept. 30, BlackRock is the most dominant asset manager in the industry. The company offers a variety of products to retail investors (i.e. non-professional investors) and institutional investors (e.g. pension funds and insurance companies). These include more than 1,000 exchange-traded funds (ETFs) that comprised $2.6 trillion of total AUM via its iShares brand, as well as countless passive and actively managed funds for institutional investors worth $3.8 trillion as of the end of the third quarter.
BlackRock's total revenue declined 14.6% year over year in the third quarter to $4.3 billion. An 11.5% drop in the company's average AUM to just under $8.5 trillion during the quarter translated into less investment advisory fees. Along with a 76.2% year-over-year plummet in performance fees to just $82 million, this accounts for BlackRock's double-digit decline in total revenue.
The company reported $9.55 in non-GAAP (adjusted) diluted earnings per share (EPS) for the third quarter. Putting this into perspective, this was down 15.8% over the year-ago period. BlackRock's 10.6% reduction in expenses wasn't enough to neutralize its lower revenue. This is why the company's net margin fell 100 basis points year over year to 33.7%. BlackRock retired 1.5% of its share count over the year-ago period, which partially offset its reduced profitability.
At a glance, the asset manager had a tough quarter. That being said, there's certainly reason for optimism beyond the next few quarters: Despite the market crash, BlackRock recorded $17 billion in net capital inflows in the third quarter. This was much better than the Dividend Aristocrat T. Rowe Price's (TROW -0.54%) net client outflows of $24.6 billion during the same period. As equity markets eventually recover, this suggests that BlackRock isn't far off of from once again surpassing $10 trillion in AUM as it did in 2021.
That's why analysts believe that BlackRock will surpass $40 in full-year adjusted diluted EPS as soon as 2024. This would be slightly higher than its record of $39.18 set in 2021.

Image source: Getty Images.
The dividend is amply covered for near-trough earnings
BlackRock's 3% dividend yield provides nice starting income compared to the S&P 500 index's 1.7% yield. And as difficult as the environment has been for the company, its dividend still seems to be safe.
This is because BlackRock's dividend payout ratio will be around 57% in 2022. Because asset managers have light capital expenditure requirements to maintain their businesses, this is a decent payout ratio. But I believe management will aim to bring it back down a bit as financial markets eventually rebound. Thus, BlackRock's dividend growth will be minimal in the next year or two, but the starting yield already compensates for this fact.
A fair entry point for the long haul
Just as BlackRock endured the Great Recession more than a decade ago, the company is poised to make it through this tough environment as well. And the stock is sensibly valued at the current $649 share price.
BlackRock's trailing-12-month (TTM) price-to-sales (P/S) ratio of 5.3 is the same as its 10-year median TTM P/S ratio of 5.3. This makes the stock a solid pick for income investors.