Please ensure Javascript is enabled for purposes of website accessibility

Will BlackRock, Inc. Raise Its Dividend in 2016?

By Jordan Wathen - Jan 14, 2016 at 9:23AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

You can take it to the bank: BlackRock shareholders should enjoy a beefier dividend in 2016.

Barring a stock market panic in 2016, it's almost guaranteed that BlackRock (BLK 4.12%) will raise its dividend.

My belief rests in its history. Since 2003, when it declared its first dividend to shareholders, BlackRock has increased its dividend every year, with the exception of 2009, when it held dividends flat with its 2008 payouts.

This year should bring another dividend increase, which will probably be announced when the company reports its fourth-quarter 2015 earnings on Jan. 15.

A low payout ratio
BlackRock's core business as an asset manager requires the company to retain very little earnings to fund growth. Historically, the company has paid out about 35% to 53% of its earnings as a dividend, topped off with routine share repurchases.

In every quarter in 2015, BlackRock supplemented its dividend with $275 million of share repurchases and guided for a similar level of repurchases in the fourth quarter of 2015. This represents about $1.1 billion of cash that could be redirected toward larger dividends if BlackRock desired to do so.

BlackRock can afford to pay out a high percentage of its net income as a dividend because of its earnings quality. Asset managers are said to be "asset-light" businesses, meaning they do not require continuous large reinvestments to grow their revenue and earnings.

This shows up in a comparison of BlackRock's net income to its free cash flow. From 2005 through the first nine months of 2015, BlackRock generated $18.8 billion in net income versus $19.8 billion in free cash flow. Ultimately, cash flow is king -- and BlackRock has plenty of it.

Further cementing my belief that BlackRock will increase its dividend is the fact that a consistently rising dividend is a hallmark of the asset management industry. T. Rowe Price has a dividend record worthy of envy, having increased its dividends for more than 25 years, putting it in a select list of so-called "dividend aristocrats."

Charts like the one above, which shows BlackRock's steadily increasing dividend over time, don't happen by accident. BlackRock has trained its shareholders to expect a dividend increase in the first quarter of a new year, and I expect that's exactly what shareholders will get in 2016.

Jordan Wathen has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

BlackRock, Inc. Stock Quote
BlackRock, Inc.
$725.21 (4.12%) $28.70

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/11/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.