Last week, BlackRock Inc. (BLK) announced a 9% increase in its quarterly cash dividend to $1.50 per share. The dividend will be paid on March 23, 2012 to the stockholders of record as of March 7, 2012.
BlackRock has been consistent in enhancing shareholder value through dividend hikes. Since 2005, the company has increased its quarterly dividend by nearly 500% from 30 cents per to the current level.
Last year, BlackRock had increased its quarterly cash dividend from $1.00 per share to $1.375. Even during the financial crisis in 2008, the company confirmed its strong financial backbone by paying 78 cents as quarterly dividend for two years.
Concurrent with the dividend rise, BlackRock’s board of directors has also authorized the repurchase of additional 1.4 million shares from the open market. There were 3.6 million shares left under the prior authorization as of December 31, 2011, thereby bringing the total share repurchase authorization to 5.0 million. During 2011, the company had repurchased about 14.2 million shares.
Similar to BlackRock, one of the industry participants – Ameriprise Financial Inc. (AMP) is also doing well with respect to enhancing shareholder value through dividend hikes. Ameriprise has been successfully increasing its dividend at regular intervals. Since 2005, it has also hiked its quarterly dividend by about 150% from 11 cents per share to the present 28 cents.
Our Viewpoint on Dividend Rise
Increasing dividend payment at regular intervals mainly reflects the company’s sound financial position, defined future prospects and the company’s commitment towards its shareholders.
Though dividend rise is an extremely encouraging step, we cannot neglect the other aspects before becoming optimistic on BlackRock. Two things that should be taken into consideration are the dividend yield (annual dividend per share/stock’s price per share) and the dividend payout ratio (annual dividend per share/annual earnings per share).
BlackRock previously had a dividend yield of 2.80%. With dividend increasing to $1.50, the dividend yield increased to 3.04%. As the company’s share price has remained almost stable over the last 90 days, yield did not increase due to price rise, leading to the conclusion that the shareholders will actually be benefited from a dividend hike.
On the other hand, BlackRock’s payout ratio was nearly 50% when its previous annual dividend was $5.50. For fiscal 2012, considering the Zacks Consensus Estimate of $13.16 per share and the increased dividend, the payout ratio is expected to be about 46%. An almost stable payout ratio signifies improved shareholder value.
Therefore, we believe that this dividend rise will definitely increase the confidence level of the BlackRock shareholders.
BlackRock currently retains a Zacks # 3 Rank, which translates into a short-term ‘Hold’ rating.
Zacks Investment Research