Blue Owl Capital is Thursday's IBD Stock Of The Day as the alternative asset manager's growth strategy pays big dividends. OWL stock cleared a short flat-base buy point, joining a two-day rally fueled by Wednesday's dovish Fed meeting.
Dividend Boost
The New York-based firm with $165.7 billion in assets under management formed in May 2021 via a combination of credit providers and expanded through subsequent acquisitions. Its annual dividend rose 22% to 56 cents in 2023. Blue Owl announced an additional 29% increase to 72 cents for 2024. The company targets a $1 dividend in 2025.
"We've been able to grow our dividend 57% over the past two years, driven solely by recurring and growing management fees," CFO Alan Kirshenbaum said on the Feb. 9 Q4 earnings call.
Fee-related earnings rose 25% in 2023 "when peers on average generated low-teens management fee growth," Kirshenbaum said.
A few things set Blue Owl apart, contributing to growth that "has been distinctly more predictable," despite the higher interest rates and constrained capital markets activity that prevailed last year, according to co-CEO Marc Lipschultz.
Blue Owl's Growth Markets
For one thing, Blue Owl's assets are generally permanent capital, meaning the funds aren't disbursed and investments aren't exited after a predetermined period of time. For another, Blue Owl has assembled the capabilities to vie for leadership in markets with secular tailwinds. The payoff has come, in part, via fees that are "toward the high side of the peer group," according to an analyst on the Q4 call.
Rather than chasing growth of assets under management, Lipschultz explained, "We focus on where we can generate really high value-added returns for investors and therefore, high-value, high-fee income for Blue Owl."
As an example, Bloomberg reported on Feb. 13, Blue Owl led a $2 billion private credit package for health care software company RLDatix.
Lipschultz noted on the Q4 call that Blue Owl started software loans six years ago and "pioneered that space."
Health care is a more recent focus. "We have a series of Ph.D.s that are part of that team that really understand the science on drug development," helping Blue Owl branch out from its recent emphasis on health care services.
Lipschultz said that Blue Owl also raised the single largest real estate fund in the U.S. last year focused on triple net leases. That's a passive real estate ownership strategy, with investment-grade tenants paying all property expenses.
The onshoring trend "is going to be a potentially huge driver for this asset class," he said. Lipschultz said Blue Owl has been "very active in dialogues with chip companies, for example."
OWL Stock
OWL stock rose 3.7% to 18671 in Thursday stock market action. That followed a 1.4% rise on Wednesday, with an assist from Fed Chairman Jerome Powell.
Thursday's move lifted shares above an 18.33 buy point from a flat base. Meanwhile, Blue Owl's relative strength line, the blue line in IBD charts that tracks a stock's progress vs. the S&P 500, hit a new 52-week high on a weekly chart.
The stock's prior breakout on Dec. 14, fueled by the dovish Dec. 13 Fed meeting, yielded a 32% advance.
Blue Owl is part of the flagship IBD 50 list of leading growth stocks.
Other big private investment firms have fared well recently. Apollo Global Management and KKR are part of the IBD Leaderboard portfolio of elite stocks, while Ares Management was a recent IBD Stock Of The Day.
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