With a down market this year and potentially difficult market conditions next year, stocks that generate passive income are looking more and more attractive. It would be nice to generate some cash while waiting for your other holdings to bounce back, and investing in consistent dividend-paying stocks can also be a great long-term strategy.
With an eye-popping 6.5% annual dividend yield, Blackstone (BX 1.68%) certainly looks like a good passive-income stock. But the key to finding good dividend stocks is to look for ones that can keep paying and covering their dividend through boom and bust. Let's see if Blackstone meets this qualification.
A variable but strong dividend
Blackstone allows clients to get exposure to alternative assets such as real estate, private equity, and hedge funds. It had more than $950 billion of assets under management at the end of the third quarter, which was up 30% year over year..
Image source: Getty Images.
The company has also been building out its private wealth business, which gives individual investors access to alternative assets. This is now a big initiative at the company, and it manages $236 billion of private wealth assets, which is up 43% over the past year.
Blackstone can certainly experience volatility due to the inherent nature of its business, in which the value of its assets can really swing up and down, similarly to the market. The company must mark these gains and losses to market, although they are just paper losses until Blackstone actually sells the assets.
This year has been difficult, leading to lots of unrealized losses, which is in stark contrast to last year. For instance, unrealized losses through the first nine months of 2022 were close to $3 billion, compared to unrealized gains of more than $7.8 billion during the same time period in 2021. Because of this aspect of the business, Blackstone has a varying dividend policy, meaning it is not uncommon to see the dividend move up or down based on earnings.
The history of the dividend
Earlier this year, Blackstone cut its quarterly dividend to $0.90 per share due to the lower earnings this year, but the annual dividend yield is still extremely healthy at 6.5%. And despite wide variations, the company had an annual dividend yield in excess of 4% on many occasions.
BX dividend yield, data by YCharts.
Management is also shareholder friendly and returned 100% of earnings to shareholders through dividends and repurchases over the last five years.
Blackstone also still had $8.7 billion in cash, cash equivalents, corporate treasury holdings, and other investments at the end of the third quarter, so the company still has healthy levels of capital.
Is Blackstone a good dividend stock?
Although investors typically look for dividend stocks that are steady and only go up, if you understand the nature of Blackstone's variable dividend and its business model, and look at the company's track record, then the stock looks much better than it might appear at first glance.
Furthermore, management is committed to paying pretty much all of its earnings out to shareholders, and the company's core business seems to be growing quite nicely when you look at assets under management and the private wealth business.
This should lead to long-term value creation and ideally higher dividends. All of this makes me believe that Blackstone is a good stock for passive income.
