BlackRock Still Looks Solid -- Ahead of the Tape

By Spencer Jakab 

It seemed like a case of the BlackRock calling the kettle black.

Laurence Fink, chief of the gigantic asset management firm, has often taken companies to task for being too short-termist. In a letter this week, he again chided executives of large U.S. companies for being too ready to dole out cash to placate activist investors. Yet some might point to his own track record.

When , chief of the gigantic asset-management firm, of large U.S. companies for being too ready to dole out cash to placate activist investors, some pointed to his own track record.

BlackRock Inc. has paid out $7.8 billion over the past three years through stock buybacks and dividends. That is 90% of its net income during that time span, putting its payout ratio on par with the S&P 500.

Look more closely, though: That amount was just 77% of BlackRock's free cash flow, money available after other corporate needs are met.

In contrast, to ward off a potential proxy battle, General Motors Co. recently agreed to buy back $5 billion of stock by next year. In its case, though, the ratios are flipped. That is a little over half GM's net income of the past two years but five times its free cash flow.

Those proportions are something to keep in mind as BlackRock unveils first-quarter results Thursday. BlackRock's profitability, despite it being most dominant in the parts of the industry with the lowest fees, appears impressive. Its growth isn't shooting the lights out, of course. Earnings per share are seen rising to $4.53 from $4.40 a year ago, according to analysts polled by FactSet.

But what is easy to forget given BlackRock's size--approaching $5 trillion in assets under management--is what a large share of fresh assets it is gathering. For example, it already had a 30% share of index-type assets last year and 7% of emerging-markets funds. The top 10 asset managers globally, though, got 87% and 75% of the net new flows in those categories, respectively, between 2011 and 2013, according to the latest data available. The reason is that, much more so than with mutual funds, investors tend to gravitate to the largest exchange-traded products, where BlackRock rules.

Now trading at a 5% discount to its average forward earnings multiple of the past decade, BlackRock doesn't appear pricey. While growth typically has been harder to come by for asset managers as their size swells, BlackRock's heft is at least as much an asset as a liability.

It also allows Mr. Fink to put his mouth where his clients' money is.

Corrections & Amplifications

The top 10 asset managers globally got 87% and 75% of the net new flows in index-type assets and emerging-market funds between 2011 and 2013, respectively. A previous version of this article misstated that BlackRock did. Additionally, BlackRock paid out 90% of its net income in buybacks and dividends in the past three years, in line with the S&P 500. A previous version of this article misstated that BlackRock paid out three times its net income in that time.

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