Long-term investors of Brookfield Asset Management Inc. (TSX:BAM.A)(NYSE:BAM) that have read my writing know I remain bullish on the company. Thanks to its seasoned investors as well as its ability to invest in a strong, diversified pool of assets, Brookfield deserves a place in your portfolio.
On November 9, Brookfield Asset Management released its third-quarter results and demonstrated consistent and considerable growth.
At first glance, net income was actually much lower this quarter, coming in at US$992 million after taxes compared to US$2 billion last year. However, last year, Brookfield Asset Management had a US$1 billion tax-recovery event, which pushed earnings high. Without that single event, net income was US$1.3 billion this quarter before taxes compared to US$1 billion. That’s strong growth.
One number that jumped out was the total assets under management, which reached US$268.99 billion. This kind of growth is amazing considering it only had US$183.9 billion in 2013. This is cumulative annualized growth of 10%. This pushed fee-related earnings to US$745 million in the quarter compared to US$288 million in 2013 — a CAGR of 27%!
Management expects fee-related earnings to continue increasing. In a letter to shareholders, management explained that as it deploys the remaining dry powder into new assets, Brookfield Asset Management will be in a position to generate increased fees. And with US$41 billion in carry eligible capital, it expects to earn US$8 billion over the next 10 years.
Another big event that took place during the quarter was the 51% takeover of TerraForm Power Inc. and the continued work on taking over TerraForm Global Inc. with its spun-off subsidiary, Brookfield Renewable Partners LP. As management wrote, “we are thrilled with the acquisition which, all told, took close to two years to conclude.” Brookfield Renewable will manage the assets.
But this deal demonstrates another reason why Brookfield Asset Management is such a great company.
Brookfield Asset Management invests alongside its spun-off subsidiaries, including Brookfield Renewable, Brookfield Property Partners LP, Brookfield Infrastructure Partners LP, and Brookfield Business Partners L.P. Even better, these subsidiaries contribute dividends to Brookfield Asset Management. On an annualized basis, they contribute over US$1.2 billion in cash dividends.
Here’s the business model of Brookfield Asset Management in a nutshell: The company takes money from preferred investors and then deploys that capital into a wide variety of assets. Because the company is comprised of value investors, it finds assets that are undervalued (like TerraForm) and then generates cash flow from them. When those assets become worth a lot more, management then sells them to recycle the funds back into the business.
Over the past five years, Brookfield Asset Management has returned 136%. In that same period, the S&P TSX has only returned 31.5%. Its fee-related income should continue to rise, and its subsidiaries are executing flawlessly, generating strong dividends for Brookfield Asset Management. Third-quarter results are just a reminder that Brookfield Asset Management is the best at what it does, and it should be in your portfolio.
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Fool contributor Jacob Donnelly has no position in the companies mentioned. The Motley Fool owns shares of BROOKFIELD ASSET MANAGEMENT INC. CL.A LV and BROOKFIELD BUSINESS PARTNERS LP. Brookfield Renewable Partners is a recommendation of Dividend Investor Canada. Brookfield Infrastructure Partners is a recommendation of Stock Advisor Canada.