Finance

Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

Stephen Schwarzman, the billionaire chairman, CEO and co-founder of Blackstone Group, is accustomed to having people pay attention to his point of view, whether it's in a meeting room at the firm's Park Avenue headquarters or in his capacity as a philanthropist. But he seems to have trouble getting his message across when it comes to Blackstone's shares.

Disconnect
Blackstone, like its peers, has struggled to win over investors.
Source: Bloomberg

As the firm's biggest shareholder with a stake of roughly 20 percent, Schwarzman has gone to lengths to persuade investors that Blackstone deserves a higher valuation -- even going so far as walking through the math of his argument -- but his words have fallen on deaf ears. 

On an earnings call Thursday, after the New York firm easily beat analysts' expectations thanks to sales of real estate assets, he resorted to sarcasm. "Who needs yield when you can invest at 1 percent in government bonds?" he dryly asked, after referring to the fact that Blackstone's dividend yield is markedly higher than that. 

Yield Bounty
Compared to other debt and equity options, Blackstone and other alternative asset managers are trading at rich dividend yields
Source: Bloomberg
*SPDR Barclays High Yield Bond ETF **Unlike Blackstone, Carlyle and Apollo, KKR's dividend policy is fixed

In fact, at roughly 6.5 percent, Blackstone's dividend yield is almost triple the 2.2 percent offered by the S&P 500 Index and also more than the 6.1 percent paid by the SPDR Barclays High Yield Bond ETF, which tracks junk-rated debt. 

While that's undeniably a good reason to own the stock, potential shareholders should remember that the yield isn't as airtight as, say, a U.S. Treasury bond. Blackstone's ability to pay dividends fluctuates every quarter and is driven in part by the firm's ability to profit from its activities across various arms, such as by selling off real estate or other investments as it has done in recent years. 

Still, there's little likelihood that the dividend will disappear completely, owing to the diversity of Blackstone's holdings and the relative stability of its management fees. And those fees should continue to grow as the firm's assets under management -- now a record $361 billion -- swell further.

Scaling New Heights
Blackstone's assets under management reached a new record this quarter, partly thanks to inflows from investors such as return-hungry pension funds and endowments.
Source: Company filings

So how did Blackstone's biggest cheerleader do this time around? As of Thursday afternoon, the shares were up about 1.5 percent. But that still left the stock trading at a forward P/E multiple closer to 9, below the 11 handle implied by analysts' average price targets. Back to the drawing board, Mr. Schwarzman.

Peter Grauer, chairman of Bloomberg LP, the parent of Bloomberg News, is a non-executive director at Blackstone.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Gillian Tan in New York at gtan129@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net