Income is a big part of investors' returns. Stocks, mutual funds and fixed income ideas in this column are featured because they are relatively solid in their ability to pay dividends or interest. We're giving income investors a resource to start their research for investments that give better yields with lower risk.

December 10, 2009 - The Blackstone Group (BX-NYSE) together with its subsidiaries, provides alternative asset management and financial advisory services worldwide. The company operates in four segments: Corporate Private Equity, Real Estate, Marketable Alternative Asset Management, and Financial Advisory.

The Real Estate segment manages six general real estate funds and two internationally focused real estate funds. This segment invests in lodging, urban office buildings, and various real estate operating companies.

The Marketable Alternative Asset Management segment engages in the management of funds, of hedge funds, credit-oriented funds, CLO vehicles, and publicly-traded closed-end mutual funds.

The Financial Advisory segment offers corporate, and mergers and acquisitions advisory services; restructuring and reorganization advisory services; and fund placement services for alternative investment funds.

Blackstone Group Management L.L.C. operates as the general partner of the company. The Blackstone Group L.P. was founded in 1985 and is headquartered in New York, New York with additional offices in Atlanta, Beijing, Boston, Chicago, Dallas, Hong Kong, Houston, London, Los Angeles, Menlo Park, Mumbai, Paris, San Francisco, and Tokyo.

The one thing you need to know right up front about Blackstone Group: earnings are volatile. So is the stock. Don't read any further if you're looking for a safe, comfortable dividend flow with a solid, steady stock price. There's a reason the yield is so high. There's plenty of risk involved.

Having said that, there's plenty of reasons to consider BX. First, earnings seem to be turning around. In 2007, they were $1.62 a share. Then in 2007, they went south, way south, to a minus $1.03. This year, analysts think the total will be 49 cents, then 98 cents next year. For the current quarter (ending December 31), estimates are for 17 cents a share well above the negative 68 cents reported last year in the fourth. Next quarter, expect 20 cents, again, well ahead of the negative 7 cents from this year's first.

Blackstone does very well when the economy is strong, when capital markets are active, and deals are getting done. None of those attributes has been evident in the last 12 months. Hence the loss last year, and some improvement this year as the credit market thawed and a few acquisitions and/or sales were completed. For investors bullish on the recovery, thinking next year we'll see major improvement, BX will be compelling research.

The turnaround can be seen in third quarter's earnings report. This year, they were 24 cents per unit vs a loss of 44 cents in the same quarter last year. Improvement came from better investment income and performance fees. As assets increased in value (starting in June of this year), fees went higher as management is paid on a percentage of asset value. In fact, in the third quarter, total revenues went to $235 million. Much better than the $625 million deficit of last year's third.

Assets under management are growing again. In 2008, they hit $99.8 billion. Still trying to reach that level, in the third quarter, the company showed $96.3 billion, up 6% from the low of $91 billion established in last year's fourth quarter. Much of that appreciation came from the stock market's strong rally in the second half of this year. Still some of it is from new assets to the firm.

The stock price reflects investors' sentiment toward this capital markets giant. It started trading in 2007 at $38 a share, then proceeded to go almost straight down (to $3.60 share) until March of this year. Then it bounced straight up, hitting a high of $17.20 on October 24. Now it's trading at $13.59. It's definitely not for the faint of heart.

More numbers: Market Cap is $4.03 billion. Forward P/E is 13.88. Price to sales is 9.23. Price to book is 1.23. Total cash is $485.47 million which is $1.64 a share. Total debt is $673.39 million. Current ratio is $1.69. Book Value is $11.07. Beta is an extraordinary 2.37 (told you the stock was volatile). In the last 52 weeks, the stock is up 125.33%. There are 296.55 million shares outstanding. Insiders own .07%. Institutions have 42.80%. The dividend is $1.20 per year for a yield of 8.70%.

As you can ascertain, this is a stock with mixed blessings: great earnings when times are good; big losses when times are bad. A high dividend that may or may not always be there. Yet, if you believe credit markets are thawing, that more mergers and acquisitions will be done, and that the stock market is going higher, then Blackstone is a great stock to participate in all of them. Check it out if you can stand the volatility.

- Company Web site: www.blackstone.com

 Ted Allrich