Summary
- BlackRock is a high quality stock with strong historical dividend growth.
- The yield is not very high today, but the yield-on-cost could rise going forward.
- BlackRock fared well amid the COVID-19 pandemic, and it also stands to benefit from the recovery.
- In this article I make the case that BlackRock is a perfect COVID-19 recovery play for dividend investors.
BlackRock, Inc (BLK) is a high quality dividend stock with a modest yield and strong historical dividend growth. Its five-year dividend growth rate of 11.32% is extremely good, and the yield today (2.08% as of this writing) beats the S&P 500. To be sure, BlackRock is no mega high yielder that throws off buckets of cash at today's prices. But the stock's strong dividend growth points to the possibility of growing yield-on-cost.
BlackRock delivered unquestionably superior growth metrics through the COVID-19 pandemic, and is poised to grow during the recovery as well. BlackRock is bullish on equities heading into 2021, and that could pay off handsomely if equities keep surging. In this article I will argue that BlackRock is a perfect COVID-19 recovery play for dividend growth investors.
BlackRock Overweights Equities for 2021
Central to the thesis that BlackRock is a great dividend stock for the COVID-19 recovery is the fact that the company has set equities to "overweight." Asset managers in general neither gain nor lose from a rapid COVID-19 recovery. It depends on whether the funds and portfolios they manage are heavy on equities--which have the most to gain if the COVID-19 recovery is swift.
Equities stand to gain from a swift recovery because, when business as usual is allowed to proceed, then companies can resume earnings growth. Government treasuries, by contrast, are much less affected by the COVID-19 recovery. In September, Jerome Powell said that low interest rates could last for years. That would suggest low yields are here to stay. The yields could improve a little as investors ditch treasuries for stocks, but the effect would be minimal. Stocks, on the other hand, are poised to rally in the event of a swift and successful vaccine deployment.
This year's stock market moves have been tied to COVID-19 developments. In February, when COVID-19 began to spread in the U.S., the S&P 500 began a descent that by March had become a bear market. It fell from about 3,380 to 2,237. Later, when the Pfizer (PFE) vaccine was announced, the index rallied from 3,269 to 3,702. That rally was part of a broader trend that began on March 23, the bottom of the COVID-19 market crash--which occurred shortly before the initial economic re-opening.
The lesson of 2020 is, when the pandemic news is good, the stock market rallies.
