Want Passive Income? Blackstone’s 4.6% Dividend Yield Is A Buy (NYSE:BXMT)

Blackstone Inc. (NYSE:BXMT) is a leading asset manager in the United States, providing passive income investors with a strong dividend and a variety of revenue streams, many of which are related to the company’s massive assets under management.

In 2022, the asset manager’s distributable earnings increased significantly year on year, and it has a diverse business model that includes investments in private equity, real estate, credit, and hedge funds.

Blackstone’s diverse business, I believe, provides downside protection for passive income investors, while the dividend is covered by distributable earnings.

The dividend yield of 4.6% is appealing to passive investors seeking recurring dividend income and, in my opinion, poised for growth.

Diversified Business Model

Blackstone really doesn’t need an introduction. Stephen Schwarzman founded the company in 1985, and it has grown into one of the world’s largest and most dominant alternative asset managers, with its fingers in a variety of businesses.

However, private equity and real estate are the company’s primary focus, accounting for the majority of Blackstone’s distributable earnings in 2022.

In the fourth quarter, Blackstone generated $1.43 billion in distributable earnings across its businesses, with real estate investments accounting for $525 million (37%), and private equity investments accounting for $511 million (36%). Credit & Insurance (18%) and Hedge Fund Solutions (10%) contributed slightly lower percentages.

Blackstone earned $7.46 billion in distributable earnings in 2022 from its diverse portfolio of alternative investments, with real estate accounting for the majority of profits.

Management fees (basically a percentage of assets under management), advisory fees, and variable performance fees that are related to the actual business performance of Blackstone’s investments are all built into Blackstone’s business model.

While performance-related fees vary widely, the company’s base management fees grow slowly and provide a fairly predictable stream of earnings for Blackstone.

Blackstone’s Assets Under Management Are Growing

Because Blackstone is paid a fee for managing specific assets, the number of assets under management is important. In 2022, Blackstone’s assets under management totaled $974.7 million, an 11% increase YoY, with 74% of those assets earning a fee. The majority of Blackstone’s assets under management are invested in real estate, which contributes the most to distributable earnings.

Real estate is a capital-intensive segment that accounts for 33% of assets under management, followed by private equity (30%) and credit and insurance (29%). Blackstone is a significant force in the Private Equity industry and one of the world’s largest alternative asset managers, with nearly $1 trillion in assets under management.

Dividend Coverage

Blackstone’s distributable earnings more than cover the company’s dividend payout by a wide margin. In 2022, the alternative asset manager had distributable earnings of $5.17 per share and paid out a total of $4.40 per share, representing an 85% dividend pay-out ratio. Blackstone earned $4.77 per share in distributable profits in 2021, and the asset manager maintained its pay-out ratio of 85%.

The asset manager’s dividend is thus well-covered by distributable earnings, and Blackstone, in my opinion, is an appealing passive income investment for investors looking to add one of the world’s largest asset managers to their portfolios.

Blackstone Has A Moderate Valuation

If Blackstone’s distributable earnings increase by 7-8% in 2023, the asset manager could earn $5.53-5.58 per share in distributable earnings.

Blackstone is valued at 17.1x 2023 estimated distributable earnings at a stock price of $94.87. Blackstone has traded at 14-19x distributable earnings multiples in the last year, so I believe the valuation is reasonable when considering Blackstone’s strong brand name, diverse business, and substantial AUM figure.

Why Blackstone Could See A Lower/Higher Valuation

Blackstone’s core businesses (Real Estate and Private Equity) are cyclical, swinging with the economy. Real estate and private equity, in particular, are highly volatile profit segments that will determine the level of Blackstone’s distributable earnings.

As a result, Blackstone’s earnings and dividend volatility are higher than that of many other passive income stocks.

My Conclusion

Blackstone provides passive income investors with a diversified business model that includes large and growing Real Estate and Private Equity segments.

Blackstone also has multiple revenue streams that are related to the amount of assets under management on the one hand and include performance-related fees that can fluctuate dramatically on the other.

Despite this volatility, Blackstone’s dividend is easily covered by distributable earnings, and the dividend yield of 4.6% is appealing to passive income investors.