Investors, Don't Ignore Blackstone!

NEW YORK ( TheStreet) -- Blackstone Group ( BX) is knocking the ball out of the park, and investors should take notice.

This company invests on behalf of its investors and takes a large percentage of the profits if the investments pay off. It also receives fees on assets managed.

Even though it traded on Friday July 19 at a new 52-week high of $23.95, it still has a nice annual dividend yield. It did announce a reduction in its current quarterly dividend from 30 cents to 23 cents, but this may represent an attempt to reduce its payout ratio of 99%, which indicates the company may not need to leverage or borrow as much to pay a generous dividend.

In the most recent quarter ended June 30, the company sold $1.6 billion worth of equities in companies it owned. It also raised another $2.1 billion selling real estate that it had purchased when the bottom fell out of the market beginning in 2008.

In its conference call, BX management said it expected this exuberantly profitable environment for selling assets to carry forward for the foreseeable future. That's a key sign of a great money management firm. It knows when to sell as keenly as it knows when to buy.

Those who were prescient enough to buy shares of BX last fall when they were changing hands for around $13 are now up nearly 88% including dividends. Heck, if you bought shares on June 24 or 25 at around $20 a share, you're sitting on a stunning 19% profit.

By many metrics the shares are still cheap. With its latest quarterly EPS results of 36 cents per share, or $211 million, its shares are trading at a forward (one-year) price-to-earnings ratio of slightly more than 8.

BX's "economic net income" more than tripled from the same quarter last year to more than $703 million. This translates to a price-to-earnings-to-growth (PEG) ratio (five-year expected) of less than 0.70.

"Economic net income" is a financial metric used to calculate the net income of publicly traded private-equity firms and to measure the value of their investments. It takes into account both realized and unrealized gains. It even factors in accounting anomalies inherent to these kinds of companies.

As Blackstone's president, Hamilton James, stated during the recent earnings call, "With credit markets hot and equities strong, this was a better quarter for selling than for buying." He's not worried about rising interest rates either.

BX invests in private equity, real estate, hedge funds and high-yielding credit funds. It buys low and sells high, with the biggest profits coming from its private equity and real estate holdings.

It still has much to sell, and that's why analysts expect total 2013 EPS to rise to about $2.26 per share. For 2014, analysts expect the company's EPS will rise further, to about $2.75.

Since BX likes to pay out a large percentage of its earnings to shareholders, it wouldn't surprise anyone if by next year the annual dividend will increase to $1.32 per share. So even if an investor bought at the 52-week high of $23.95, he or she would be on track for a yield-to-price ratio of more than 5.5%.

Take a look at this one-year chart. It includes the trailing 12-month revenue per share plus the breathtaking diluted quarterly year-over-year EPS growth. Behold a powerful money machine!

BX Chart BX data by YCharts

It's been a great year for firms like BX and peers such as KKR ( KKR). Shares have soared as investors rightly anticipated big paydays as the firms' equity holdings peaked with the ebullient stock and real estate markets.

This rewarded some of BX's biggest shareholders, such as California Public Employees Retirement System, which has invested more than $45 billion with various asset managers like BX. As of the end of March 2013 more than 7% of the outstanding shares of BX were owned by FMR, LLC (a.k.a. Fidelity Investments).

It's good for investors to know that BX uses leverage and carefully financed debt to make large investments in what it anticipate will rise in value. That's how it amassed a large real estate portfolio.

Yet with leverage and high debt loads comes volatility, so it wouldn't surprise me if shares trade in a range between $20 and $24 per share for the next few months. The good news is this would make it possible to average down while enjoying the nearly 4% dividend yield.

At the time of publication, had no positions in stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Marc Courtenay is the founder and owner of Advanced Investor Technologies, LLC, as well as the publisher and editor of

Courtenay holds a Master's of Science degree in Psychology from California Polytechnic State University, and is a former senior vice-president of Investments for two major brokerage firms. He's been a fiercely independent investment "investigator" and a consulting contributor to the investment publishing world for over 30 years. In addition to his role as an investment publisher and analyst, he serves as a marketing consultant to the investment media industries.

In his role as a financial editor, he specializes in unique investment strategies, overlooked stock investments, energy and resource companies, precious metals, emerging growth companies, the prudent use of option strategies,real estate related opportunities,wealth preservation, money-saving offers, risk management, tax issues, as well as "the psychology of investing". Because of his training and background in Clinical Counseling and Psychology, he enjoys writing about investor behavior, the ¿herd mentality, how to turn investment mistakes into investment breakthroughs and the stock market's behavioral trends and patterns.

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