The world's largest asset manager, BlackRock (BLK +0.00%), has one of the highest dividend payouts you'll see on the market.
BlackRock pays out an astronomical $5 per share dividend per quarter, or $20 per share per year. Why is its dividend so high, and is it a good stock to own for income investors?
A good yield and a high share price
There are two primary reasons BlackRock's dividend is so high, and the first is simply its stock price. BlackRock is currently trading for around $695 per share, which is a pretty high at a per share level. As the dividend yield is the percentage of the stock's current price, the higher the share price, the higher the dividend will be.
Now, that doesn't necessarily mean that a big quarterly payout makes for a great dividend stock. A lower-priced stock, like Citigroup, for example, might be a better option because, while it pays a quarterly dividend of only $0.51 per share, its stock price is only $52. So you could buy nearly 14 shares of Citigroup for roughly the same price as one share of BlackRock, and that would net you $7.14 in dividend payouts per quarter and $28.56 annually -- more than the payout received from owning a single share of BlackRock.
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Key Data Points
That is because Citigroup has a higher yield than BlackRock, 3.96% versus 2.94%, respectively. While Citigroup has one of the best yields in the sector, BlackRock's is not too shabby. At 2.94%, it is slightly below the average in the financial sector, which is 3.18%, but it is much higher than the average yield on the S&P 500, which is about 1.68%.
However, if you look at the five-year average yield for BlackRock, it is 2.58%, which is approximately 13% higher than the sector average.
So, the reason that BlackRock's payout is so high has to do with its high share price and competitive dividend yield. But is it a good dividend stock?
Is BlackRock a buy?
A few other factors go into evaluating a good dividend stock. One is its track record and commitment to the dividend. BlackRock has increased its annual dividend payout every year for the past 13 years. In the first quarter, it bumped it up again, from $4.88 per share to $5.00, signaling that it will raise its dividend for the 14th straight year in 2023.
"We also remain committed to systematically returning excess cash to shareholders through a combination of dividends and share repurchases and returned a record $4.9 billion to shareholders in 2022, including $1.9 billion of share repurchases, an increase of over 30% from 2021," Chief Financial Officer Gary Shedlin said on the fourth-quarter earnings call.
One minor concern with BlackRock is its payout ratio, which is about 55% -- meaning it pays out 55% of its earnings toward the dividend. That is a bit on the higher side, but it is because BlackRock has just endured one of its most difficult years in more than a decade.
BlackRock, as the world's leading manager of mutual funds and exchange-traded funds (ETFs), is going to struggle in a bear market, as many of its fees are based on asset levels and market performance. But as the market leader, it should surge back up as the market improves, and so will its earnings. Its dividend should be rock solid and sustainable.
Overall, BlackRock pays out a high dividend, and it is also a good dividend stock. The two don't always go hand in hand, but in this case, they do.
