The market seems pessimistic about Brookfield Asset Management — is now the time to jump aboard?
Brookfield Asset Management (BAM +1.42%) is offering investors a dividend yield that is triple that of the S&P 500 index (^GSPC 0.06%). And the Canadian asset manager is targeting annual earnings growth rates of as much as 18%. If you are a growth and income investor, you should be paying very close attention to Brookfield Asset Management.
The company has done it once already
Brookfield Asset Management plans to increase earnings by roughly double during the next five years, taking fee-earning capital from $580 billion to $1.2 trillion. That’s an audacious goal, but it doesn’t come out of nowhere.
Between 2020 and 2025, management was able to increase the asset manager’s fee-earning capital from $277 billion to the current $580 billion. That resulted in fee-related earnings growth of roughly 15% a year.
Image source: Getty Images.
Knowing that Brookfield Asset Management has doubled the size of its business before should give investors greater confidence in its ability to do so again. However, it is essential to remember that the company operates on Wall Street, and a bear market could impede its progress toward its longer-term goals. Of course, bull markets have always followed bear markets, so any setback is likely to be temporary.
It is also worth noting that Brookfield Asset Management’s business is diversified. It manages money across renewable power, infrastructure, real estate, private equity, and credit, serving small investors, larger investors, and institutional investors, such as insurance companies.
Overlaying these five business segments are the investment themes of decarbonization, deglobalization, and digitization. Management believes that these megatrends represent a $100 trillion opportunity.
What does Brookfield Asset Management look like in five years?
Assuming that Brookfield Asset Management can achieve its business growth targets, which it has proven it can do, where does that leave the stock? That is a difficult question to answer, but you can get some insight if you consider the current and attractive 3.3% dividend yield.
Part of Brookfield Asset Management’s growth plan is to use its distributable earnings growth to power dividend growth. If distributable earnings growth rises at an 18% clip as forecast, then the company should have little difficulty increasing the dividend, on an annualized basis, at the 15% rate that it hiked the payment to in 2025. So, in about five years the dividend will have doubled, using the rule of 72 to get a rough estimate.
Dividend yield is a simple mathematical equation that divides the annualized dividend payment by the current stock price. Increase the dividend and keep the stock price the same, and the yield moves higher. However, steady dividend increases usually lead to steady stock price gains, with stocks often trading within a yield range. To maintain the stock’s current 3.3% yield, the share price would need to double, too.
Brookfield Asset Management
Today’s Change
(1.42%) $0.74
Current Price
$52.78
Key Data Points
Market Cap
$86B
Day’s Range
$51.98 – $53.25
52wk Range
$41.78 – $64.10
Volume
2M
Avg Vol
2.3M
Gross Margin
94.86%
Dividend Yield
3.32%
Long-term investors are looking at an attractive yield today backed by a growing business. That growth will likely lead to dividend growth and share price appreciation. That’s a solid growth and income story that even conservative investors would likely find worthwhile.
Don’t overlook the future bear
The fundamental investment thesis for Brookfield Asset Management is strong. And investors need to remember that five years is a long time on Wall Street. It wouldn’t be surprising to see a bear market occur sometime between now and 2030. So it is important to remember that this story is going to play out over five years, and you are, effectively, making a five-year commitment to the stock if you buy it based on the company’s growth plans.
Don’t let a bear market scare you out of Brookfield Asset Management or you could end up missing out when the market recovers.
