Harry Domash's Winning Investing

Two Stocks For 2023: #1 Blue Owl

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 (OWL).

Alternative Assets
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 publically traded alternative asset investor.

Blue Owl Capital is probably the smallest. It 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: All About Growth
Blue Owl is in fast growth mode. September quarter Assets Under Management which totaled $132 billion, were up 87% vs. year-ago. Revenues soared 107% to $371 million.

As I’ve mentioned in previous articles, 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?

Permanent Capital: The Best Kind

According to a recent analyst report, over 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.

Dividends: 20% - 25%+ Annual Growth

Blue Owl paid its first quarterly dividend, $0.04 per share, in August 2021. Since then, it has raised its quarterly payout by $0.01/per share in most quarters. Its most recent payout, $0.12 per share in November, was 33% above year-ago.

According to analysts, that trend will continue. They’re expecting quarterly dividends to average $0.15 per share next year and $0.18 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.

published 12/21/22

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