Blackstone (BX +3.36%) has had an impressive rise over the past five years. The company's share price has nearly tripled, and it provided an annualized return of roughly 22%. That is nearly three times more than the S&P 500 during that same period.
The stock had a rocky end to 2022, leaving many investors wondering what's in store for this leading alternative asset management company over the next five years. Let's take a closer look and see where the company could be headed and if this time period will bring similar market-beating returns as the years prior.
NYSE: BX
Key Data Points
A look at Blackstone today
Blackstone is one of the leading global alternative asset management companies, helping high-net-worth individuals and large corporations, like insurance companies, invest in things like real estate, debt equities, fintech, and renewable energy.
Interest in alternative investments has skyrocketed over the last decade as investors seek new ways to diversify their holdings and earn a competitive return. The company's assets under management (AUM) doubled over the last five years. At the end of 2022, they reached a record $975 billion, an 11% jump from the year prior and 106% over five years ago.
This, of course, has boosted its fee-related earnings (FRE), which is the revenue it makes for managing investors' money. The stock was facing some unique challenges at the end of 2022. Its private real estate investment trust, BREIT, saw an unexpected rise in redemption requests, which forced the company to cap the requests.
Some investors saw this as a sign of vulnerability, and the stock went sinking. Its full-year 2022 earnings, however, eased much of that concern and put the stock on track for recovery.
Five years ago, the company had no debt, which is staggering given the size and scale of the company. Today it's got around $11 billion in debt. But it isn't a concern, considering it has nearly $19 billion in cash on hand -- more than enough to pay off its current liabilities, maintain its dividend payments, and keep investing. The company still boasts an A credit rating.
Alternative asset demand should keep growing
To determine where Blackstone could be headed over the next five years, we have to look at the outlook on alternative asset investments and how the economy could affect the growth of this industry.
Since Blackstone earns money from its management fees, it relies on the constant flow of new capital into its funds to grow its fee-related earnings. No one truly knows what will happen in the future, but many experts predict alternative asset demand will hold steady.
Preqin, an alternative asset data company, expects global alternative assets under management to grow to $23 trillion by 2026 from $13.3 trillion in 2021, at an annual growth rate of 11.7%. A report published by the Chartered Alternative Investment Analyst (CAIA) Association predicts the percentage of alternative assets in the global investment market will double by 2030 to 24%.
High inflation and a slowing economy could impact the near-term performance of certain alternative asset industries. Real estate, for example, is feeling pressure from high interest rates, and cap rates are climbing. Higher cap rates are great when buying, but not great for selling because the asset is valued less.
This could lead to write-downs of asset values in the future, as management companies update the values of their holdings in the future. However, this isn't a massive concern over the future of the company or the value it should receive from continued demand over the next five years.
Blackstone has the advantage of having experience in distressed investing. The company not only survived but came out ahead during the Great Recession thanks to its high liquidity. It's in a similar position today, with $187 billion in dry powder, which should allow it to take advantage of favorable pricing on new investments for its clients. Economic conditions could result in the company growing at a slightly slower pace than the previous five years, but I still see the next five years being extremely prosperous for Blackstone.
Even with its 30% rally in January, the stock still is down 20% since last year. Its total dividend payments for 2022 would net investors a roughly 5% yield at today's price.
The stock is priced somewhat richly compared to its other asset management peers; however, given its historical performance and continued growth opportunities, I believe right now it's a favorable time to buy this high-growth dividend stock.
