What’s Ahead for Brookfield Asset Management Stock?

Brookfield Asset Management (TSX:BAM) stock is a good long-term core holding, especially now that it offers a decent dividend yield.

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Brookfield Asset Management (TSX:BAM) stock may not be the same stock you have in mind. Namely, before December 2022, Brookfield Asset Management was still the parent company. After spinning off 25% of the actual asset management business, Brookfield Corporation is now the parent company and retains a 75% ownership stake in Brookfield Asset Management. So, when talking about Brookfield Asset Management here, I’m referring to the subsidiary.

Now, Brookfield Asset Management provides investors a pure-play exposure to a leader in alternative asset management. It has about US$762 billion of assets under management, across real estate, renewable power, infrastructure, private equity, and credit. At the end of the third quarter, its fee-bearing capital, from which it earns management fees, was US$407 billion.

Brookfield Asset Management still enjoys synergies

The synergies between Brookfield and Brookfield Asset Management before they split stays in place. Specifically, in a press release, management noted “the sharing of industry expertise; accessing the operating expertise across our platforms; joint sourcing of deals; and the capital investor’s [i.e., Brookfield’s] use of its strong balance sheet to invest alongside the asset manager, enabling our combined entities to complete large-scale transactions.”

A bigger dividend that can grow faster

Since Brookfield Asset Management does not need a lot of money for capital investments, such as for facilities or equipment, it leaves more earnings for its dividend. In fact, the company plans to pay out about 90% of its earnings as dividends. A bigger dividend yield is a marked difference from when it was a part of today’s Brookfield Corporation. At about $45 (or US$33.70 on the NYSE) per share at writing, the dividend stock yields about 3.8%.

The company earns management fees on its assets under management. Because of its access to large-scale capital, it’s able to make investments in large, top-notch assets with little competition. Its global reach enables it to invest for the best risk-adjusted returns based on opportunities available in different geographies and asset classes.

When it achieves certain return targets on its investment funds, it also earns additional performance fees that accumulate as unrealized carried interest, until a fund is liquidated and investments are returned to investors.

Historically, it has increased its management fees and accumulated unrealized carried interest at a double-digit rate. The pure exposure to these earnings and the cash-flow rich business can lead to a faster-growing dividend.

The Foolish investor takeaway

Brookfield Asset Management is a capital-light business that can generate growing cash flows and has access to ample liquidity for growth. Over the next five years, the company aims to roughly double its fee-bearing capital by growing it to approximately US$1 trillion.

The stock provides a decent dividend and has strong growth potential. At writing, it has climbed 16.5% year to date — more than double the Canadian stock market’s appreciation of 7.3%. It may be smart of interested investors to start building a position and to add more shares opportunistically on dips. BAM is a good stock to buy. Also check out the best Canadian stocks to buy now.

BAM will be releasing its fourth-quarter 2022 results on February 8, which would be a great opportunity to find out about the company’s latest news and results.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Kay Ng has positions in Brookfield and Brookfield Asset Management. The Motley Fool recommends Brookfield, Brookfield Asset Management, and Brookfield Corporation. The Motley Fool has a disclosure policy.

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