Most analysts are predicting a tough market ahead for 2023. I won’t argue. But even in a bad market, there are usually some stocks that go up anyhow. So, today, and in my next column, I’m going to describe two stocks that I expect to at least beat the market next year, and hopefully, even in a down market, produce positive returns.
Today, I’ll start with Blue Owl Capital (ticker symbol: OWL).
The term “alternative assets” applies to non-publicly traded assets such as privately held companies, venture capital, real estate and commodities. Blackstone (BX) is the largest publicly traded alternative asset investor. Blue Owl Capital was formed via a December 2020 merger of two alternative asset investors, Owl Rock Capital Group and Dyal Capital Partners.
After its May 2021 IPO, Blue Owl then acquired two more alternative asset managers, Oak Street Capital in October 2021 and Ascentium Group in December 2021. Although a combined corporation, the original four companies still operate more or less independently.
Blue Owl is in fast growth mode. September quarter Assets Under Management which totaled $132 billion, were up 87% vs. a year ago. Revenues soared 107% to $371 million. As I’ve mentioned before, share prices track annual earnings per share (EPS) closer than any other single factor. For next year, analysts are forecasting 30% EPS growth, powered by a 34% jump in revenues. Why such spectacular growth?
According to a recent analyst report, more than 80% of Blue Owl’s assets under management can be classified as “permanent capital.” What’s that? Permanent capital does not have to be paid back at any predetermined date, if at all. Shareholders can only withdraw their investment by selling their shares to someone else. That’s the best kind of cash to have. Why? Blue Owl doesn’t have to be continuously procuring new cash to replace cash coming due to be repaid. For comparison, only about 20% of Blackstone’s net asset value qualifies as permanent.
Blue Owl paid its first quarterly dividend, 4 cents per share, in August 2021. Since then, it has raised its quarterly payout by 1 cent per share in most quarters. Its most recent payout, 12 cents per share in November, was 33% more than year ago. According to analysts, that trend will continue. They’re expecting quarterly dividends to average 15 cents per share next year and 18 cents in 2024. To put those numbers in perspective, that’s around 25% dividend growth next year and 20% dividend growth in 2024.
These are my ideas, but do your own due diligence. The more you know about your stocks, the better your results.
Harry Domash of Aptos publishes the Winning Investing and the Dividend Detective websites. Contact him at www.winninginvesting.com or Santa Cruz Sentinel, 324 Encinal St., Santa Cruz, CA 95060. To see previous Domash columns, visit santacruzsentinel.com/topic/Harry_Domash.