Blackstone’s Profits Fell, but Its Stock Rose 4%. Here’s What Dividend Investors See
Blackstone just reported falling profits and its stock jumped 4%. That paradox reveals something about how asset managers pay dividends that most income investors never stop to examine.
Blackstone (NYSE:BX | BX Price Prediction) reported this morning that profit fell as rates, inflation, and a choppy market slowed dealmaking and investment exits (Bloomberg, Reuters). Investors still bought the stock, sending shares up 4.04% in early trading. That reaction explains why this group of stocks works for income investors. Asset managers collect fees on the money they manage, so rising markets lift assets, fees, and the cash that pays dividends. Blackstone, Franklin Templeton (NYSE:BEN) and Invesco (NYSE:IVZ) all pay their dividends from that fee engine, but each one sets its payout in a very different way.
How Asset Managers Turn Market Rallies Into Dividend Checks
An asset manager charges a small percentage fee on its assets under management (AUM). When stock and bond prices rise, AUM grows even if no new client money comes in, and fee revenue grows with it. At Invesco, the CFO said favorable markets alone added $257 billion to AUM last quarter. Alternative managers like Blackstone also earn performance fees and carried interest when they sell investments at a gain.
That income depends most on the market, because profitable exits need open IPO and M&A windows. It works in reverse too. Falling markets shrink AUM and fees, which is why all three stocks carry betas above 1.5: 1.587 for Blackstone, 1.576 for Franklin and 1.631 for Invesco.
Blackstone: A Payout That Rises and Falls With Earnings
Blackstone yields 4.88%, based on $5.23 per share paid over the past year, with shares at $114. The company has no fixed quarterly dividend. Blackstone pays out about 85% of its distributable earnings each quarter, so the check changes every time. The last three payments were $1.49, $1.16, and $1.29.
Dividend safety: The second-quarter dividend of $1.29 came from distributable earnings of $1.52 per share, a payout of about 84.9%. On GAAP earnings of $4.45 per share, the trailing payout comes to about 117.5%. The policy is based on distributable earnings, and management says it plans to return 100% of cash earnings over time through dividends. The balance sheet holds $7.5 billion of embedded realization potential, or $6 per share, the highest level in four years. Blackstone has paid a distribution every quarter since its first payment of $0.30 in late 2007, but the amounts have swung widely, down to $0.37 in mid-2020.
Bull case: The fee base keeps growing under the payout. AUM reached a record $1.35 trillion, up 11% year over year, with inflows of more than $260 billion over the last 12 months. Fee-related earnings rose 22% to $1.8 billion, and the CFO expects about double-digit growth in base management fees in 2027. The stock is down 23.77% this year and trades at 16 times forward earnings, compared with 25 times trailing. The current yield shows a share price well below the $160.11 52-week high.
Risk: Your income fluctuates with realizations. Last quarter, management had noted a sequential deceleration in net realizations, and this morning’s results showed profit falling as exits slowed. Blackstone’s dividend has no floor, so the recent $1.29 payment could be followed by a smaller one.
Franklin Templeton: A Steadily Rising Payout Backed by Record AUM
Franklin Templeton yields 4.19% on an annual dividend of $1.31, with shares at $31.39. The stock is up 35.94% this year. Of the three names here, it pays the most predictable income.
Dividend safety: The regular quarterly dividend went from $0.27 in 2020 to $0.33 now, rising every calendar year with no cuts along the way. Going back further, it was $0.12 in 2014. On trailing GAAP earnings of $1.47 per share, the payout ratio is a tight 89.1%. One-time items weighed on that figure, including a $100M regulatory settlement, a $33M impairment, and $77.2M of special termination benefits. Adjusted earnings of $0.72 per share last quarter covered the $0.33 dividend with a payout of about 45.8%. Franklin also has $3 billion of its own balance sheet invested in funds, and it returned $521.5M to shareholders in the quarter. The CFO said: “We are always focused on ensuring we are in a position to continue to increase our dividend. That’s a high priority.”
Bull case: AUM climbed to a new high of $1.79 trillion, and long-term net inflows reached $18.4B, compared with outflows a year earlier. The adjusted operating margin rose to 28.0% from 23.7%. Management expects a fiscal fourth-quarter margin very close to, or at, 30% and about 29%–30% for 2027, assuming markets stay flat. The stock trades at 10 times forward earnings versus 22 times trailing, suggesting analysts expect earnings to rise sharply.
Risk: Western Asset Management keeps losing assets. It had another $1.1B in outflows this quarter, and until those outflows stop, GAAP coverage will stay below what the adjusted numbers suggest.
Invesco: QQQ Fees and a Shrinking Debt Load Power Dividend Growth
Invesco yields 3% on an annual dividend of $0.85, with shares at $28.71. It has the lowest yield of the three, but its dividend is covered best by adjusted earnings.
Dividend safety: Adjusted earnings of $0.71 per share last quarter covered the $0.215 dividend with a payout of about 30.3%. Trailing GAAP EPS is negative at -$0.68, so a GAAP payout ratio is not meaningful. The CFO is aiming for a total payout near 60%, including buybacks. Financials are improving quickly: total debt fell to $1.62B from $1.97B, and the revolver shrank to $136 million from $1.1 billion. Leverage excluding preferred stock is 0.54x, or 1.9x including it.
Bull case: The Invesco QQQ Trust (NASDAQ:QQQ) conversion to an open-end fund lets Invesco collect management fees on QQQ for the first time. That produced $130 million of additional net revenue in the first half. Net long-term inflows climbed to a record $45.1B last quarter, and the adjusted operating margin rose to 37.5% from 31.2%. At 10 times forward earnings, investors are paying a modest price for a manager that benefits directly from a Nasdaq rally.
Risk: Invesco cut its quarterly dividend to $0.155 from $0.31 in 2020, and the steady increases since then have not yet restored the old rate. Fundamental Equities also lost another $7.7B in the quarter.
Ranking the Three on Dividend Safety
Franklin Templeton ranks first for dividend safety: its quarterly payout has risen every year since 2020, adjusted coverage is comfortable, and management calls dividend growth a high priority. Invesco ranks second, with the strongest adjusted coverage and a fast-shrinking debt load, held back only by its 2020 cut. Blackstone ranks third for safety despite the highest yield, because its payout follows distributable earnings and today’s profit decline shows how quickly that income can shrink. All three get paid when markets rise, but only Franklin and Invesco promise you a set quarterly amount.
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Chris Lange is a financial and geopolitical writer with more than a decade of experience covering a myriad of topics. He has published thousands of articles for 24/7 Wall St., with past coverage focused heavily on stocks, IPOs, healthcare, defense, global affairs, and technology.
His work has been quoted, or referenced by a number of outlets including Business Insider, USA Today, Yahoo Finance, MSN, The Motley Fool, and many other publications. A graduate of Southwestern University, he studied business with a focus on investments and has previous experience in banking and startups.
When not reading or writing the news, he is following his passion for Lacrosse, playing chess, or building solar projects with his dad.
