Blackstone (BX -2.71%) has made headlines in recent months because money has flowed out of some of its key investment vehicles. However, despite those notable outflows, capital continues to pour into the leading alternative asset manager.
The company ended the first quarter with $991.3 billion of assets under management (AUM), up 2% from the end of 2022 and an 8% year-over-year increase. That positions the company to grow its future fee-related earnings and performance revenues, drivers of its dynamic dividend.
Here's a closer look at Blackstone's first-quarter numbers and what they mean for its dividend.
More money is flowing in than out
Blackstone has faced a torrent of negative headlines over the past few months due to a surge in redemption requests at some of its investment vehicles geared toward high-net-worth investors. Blackstone has had to cap redemptions at its non-traded real estate investment trust (REIT), Blackstone Real Estate Income Trust (BREIT), and private credit fund (BCRED).
Those redemptions remained a headwind during the first quarter. Blackstone recorded $10.8 billion of outflows, including $4 billion in real estate and $4.8 billion in credit and insurance.
However, inflows vastly exceeded outflows during the period. Blackstone's investors have already entrusted it with an additional $40.4 billion of capital this year. After adjusting for realizations and market activity, total AUM grew 2% from the end of last year to $991.3 billion.
That gave Blackstone tremendous dry powder to make investments in the current environment:
Image source: Blackstone. AUM = assets under management.
The company has an industry record of almost $200 billion of dry powder available for new investments (nearly 20% of its total AUM). That massive war chest puts the company in an excellent position to capitalize on "what we believe will be an attractive environment for deployment," stated CEO Steve Schwarzman in the first-quarter earnings release.
Solid performance in a challenging market
Blackstone's strong inflows and record dry powder position it to grow its future fee-related earnings and performance revenues, especially as market conditions improve. In the meantime, Blackstone is producing solid results amid a challenging market.
In the first quarter, the company generated $1 billion, or $0.86 per share, of fee-related earnings. That was down 9% year over year due to a big decrease in fee-related performance revenues. The company also experienced lower realized performance revenue and principal investment income, which are lumpier due to event-based investment realizations. These headwinds caused distributable earnings to fall 36% to $1.25 billion, or $0.97 per share.
Dynamically returning cash to shareholders
As is its practice, Blackstone returned nearly all that money to shareholders. It declared an $0.82 per share dividend payment for the first quarter. While that's down from $0.91 per share last quarter, Blackstone has paid $3.90 per share in dividends over the previous 12 months. That annualized rate gives Blackstone a dividend yield of more than 4% at the recent share price. It also repurchased one million shares in the quarter. Between the two, it returned $1.2 billion of cash to shareholders, almost all of its distributable earnings.
Blackstone's variable dividend will ebb and flow with distributable earnings. While earnings were down during the first quarter, profits are poised for significant growth in the future as Blackstone puts its dry powder to work. Meanwhile, given its brand reputation and differentiated returns, cash will likely continue flowing into Blackstone as market conditions improve. That will grow its AUM, driving higher fee-related earnings and performance revenues as those funds achieve their return objectives.
A solid quarter amid the storm
Despite the negative headlines, more money is flowing into Blackstone than out. That's driving its AUM up toward the $1 trillion milestone, giving the alternative asset management giant a massive war chest to hunt for new investment opportunities in an increasingly attractive market.
Thus, the company is positioned to generate higher fee-related and distributable earnings in the future, propelling the company's dynamic dividend upward over the long term. And that makes Blackstone a compelling investment opportunity for those seeking income with lots of upside potential.
Matthew DiLallo has positions in Blackstone and has the following options: short June 2023 $60 puts on Blackstone. The Motley Fool has positions in and recommends Blackstone. The Motley Fool has a disclosure policy.
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