Where Will Brookfield Asset Management Be in 10 Years?

Globe and Mail

6 hours ago

Brookfield Asset Management (NYSE: BAM) is an attractive dividend growth stock. You could also look at it as a desirable growth and income stock. The two stats backing that up are the above-market 3.1% yield and the huge 15% annual dividend growth rate that management is projecting out to the end of of the decade. What does that mean for investors? And what happens after 2030?
What does Brookfield Asset Management do?
Before looking at the dividend growth opportunity with Brookfield Asset Management, it is important to understand what the company does. It is a large Canadian asset manager with a historical focus on infrastructure. It has long invested on a global scale, as well, so it has a very broad investment universe. In recent years it has expanded the universe, too, adding a bond specialist to the mix and broadening its efforts in private equity.
Brookfield Asset Management operates across five different platforms: renewable power, infrastructure, real estate, credit, and private equity. It believes it is positioned to benefit in all of these business lines from key long-term trends, including the shift toward clean energy, the world becoming increasingly digital, and de-globalization. The goal is to increase the fee-bearing assets it manages from $550 billion to $1.1 trillion by the end of the decade.
As an asset manager, Brookfield Asset Management charges fees for managing other people's money. So growing fee-bearing assets will lead to higher revenues and earnings. If it hits its current targets, the company believes it can grow the dividend 15% a year through the end of 2030.
What will Brookfield Asset Management look like in 2030?
Assuming Brookfield Asset Management can live up to its dividend growth goal, which is not unreasonable, the dividend will grow from about $0.44 per share per quarter to $0.88. If the stock price remains the same in 2030 as it is today, the dividend yield would increase from 3.1% to 6.3%. If, as is more likely, the stock price increases as the dividend grows, the stock will rise from around $56 per share to $112 if the yield remains at the 3.1% level. But, in the price increase example, the yield on purchase price for an investor buying today would still be 6.3%!
That's great and should interest dividend growth as well as growth and income investors. But what happens over the five years after that? If the company can keep growing the dividend by 15%, which would be a very tall order, the dividend in 2035 would be $1.77 per share per quarter. That would suggest a yield on purchase price of 12.6% and a stock price of $224 per share if the market continued to afford the stock a 3.1% yield. Wow!
However, 15% dividend growth for a decade is a pretty aggressive expectation. What if the dividend growth is just half that rate after the first five years, slowing to 7.5% a year between 2031 and 2035? In that case the dividend will grow to $1.26 per share per quarter and the yield on purchase price would fall to "only" 9%. If the stock is still yielding 3.1% in 2035, the stock price based on the higher dividend would be around $160 per share. So it is still a very attractive outcome even if Brookfield Asset Management's growth slows materially in the back half of this 10-year outlook.
A lot depends on Brookfield Asset Management's execution
These are just estimates played out using a spreadsheet. Real life is always more complicated. Brookfield Asset Management's future is highly dependent on its ability to execute and, frankly, the ups and downs of Wall Street. However, if Brookfield Asset Management can live up to its lofty goals over the next five years, it is a very attractive dividend growth/growth and income stock today. And if it can do half as well over the five years after 2030 it will still be an attractive investment over that 10-year horizon.
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