Building wealth is as simple as buying enough quality companies and owning them for the long run. That's because businesses become more valuable as they increase revenue and profits.
During the past 10 years, the asset manager BlackRock (BLK -0.66%) has turned a $1,000 investment into $3,500 with dividends reinvested. This is an attractive total return compared to the $3,300 that the same investment in the S&P 500 index now would be worth.
But can BlackRock's total returns continue to outpace the broader market? Let's look at its fundamentals and valuation to find out.
A universal truth is on BlackRock's side
As is the case in most industries, a company's success is a reflection of the trust of its clients or customers. This is especially true of the asset management industry because of the enormous resources that individual investors and institutional investors such as pension funds and insurers have at stake.
Since its founding 35 years ago, no fund manager has done more than BlackRock to gain the confidence of the investing community: The company's vast array of exchange-traded funds (ETFs), including iShares, appeals to investors with a wide variety of investment objectives and risk tolerance.
This explains how BlackRock is entrusted with the industry-leading assets under management (AUM) -- $9.1 trillion as of March 31, which supports its lofty $103 billion market capitalization.
And there are plenty of reasons to believe that the company's AUM and market cap will surge much higher in the years ahead. As well as financial markets have done in 2023 so far, the S&P 500 index remains 7% below its all-time high of about 4,800 in early January 2022. And it's well documented that as businesses become more valuable over time, financial markets always surpass previous all-time highs to reach new ones.
And BlackRock's recent application for a Bitcoin-based ETF could become the first to be approved by the Securities and Exchange Commission. Coupled with an eventual recovery in financial markets, this is why analysts believe that the company's adjusted diluted earnings per share (EPS) will rise at an annual rate of 9.9% through the next five years.
Image source: Getty Images.
An above-average payout
Investors seeking strong passive income will be intrigued by BlackRock's 2.9% dividend yield, significantly more than the S&P 500's 1.6% yield. Having nearly tripled its quarterly dividend since 2013 to the current $5, the company has also handed out its share of payout hikes to shareholders.
Data source: YCharts.
The only caveat is that dividend growth will probably be limited for one more year to allow earnings increases to lower the payout ratio to a more comfortable level. This is because the projected payout ratio of about 57% for 2023 is on the high end of the historical norm for the company.
BlackRock could be a buy
Just like the broader market, BlackRock stock has fared well in the past 12 months: Shares of the asset manager have gained 12% during that time. At a glance, the forward price-to-earnings (P/E) ratio of 19.8 might seem excessive compared to the asset management industry's average forward P/E of 11.6. But an asset manager of its caliber arguably deserves such a premium.
This is why I believe that BlackRock is a stock worthy of consideration within a dividend growth portfolio, especially on any near-term weakness in the share price.
