One of the largest companies in Canada, Brookfield Asset Management (TSX:BAM) provides alternative asset management services. Its renewable power and transition business includes the ownership, development, and operation of hydro, wind, solar, and energy transition power-generating assets. Additionally, BAM’s infrastructure business is engaged in the development of utilities, transport, midstream, and data assets.
Valued at a market cap of $17.7 billion, BAM offers shareholders a dividend yield of 3.9%. Let’s see if you should buy BAM stock for its tasty dividend yield right now.
The bull case for Brookfield Asset Management stock
Brookfield Asset Management is among the fastest-growing alternative asset managers globally. With a distinguished track record of owning and operating cash-flow-generating businesses, BAM has around US$800 billion in assets under management (AUM) with US$440 billion of fee-bearing capital. It has operations in 30 countries and is among the top Canadian stocks in 2023.
Around 84% of BAM’s fee-bearing capital is long term. Moreover, the fee-related earnings margin is between 55% and 60%.
These fee-bearing investments include the following:
- $52 billion in renewable energy
- $97 billion in infrastructure
- $41 billion in private equity
- $98 billion in real estate and
- $152 billion in credit
The company aims to grow fee-based earnings between 15% and 20% annually in the medium term, which should support future dividend hikes. BAM aims to distribute at least 90% of cash flows via dividends, making the stock attractive to income-seeking investors.
BAM emphasized, “Our scale makes us a partner of choice, as an increasing amount of capital flows to the largest, multi-asset class managers in a period of industry consolidation.” Its business is well-poised to benefit from secular tailwinds surrounding clean energy, credit, infrastructure and real estate.
The company has US$175 billion of discretionary capital across the broader Brookfield organization, which can be invested and further expand its base of cash-generating assets.
BAM is a large-scale investor with on-ground operations in key global markets. It provides access to attractive investment opportunities in the Americas, Asia-Pacific, Europe, and the Middle East.
What’s next for BAM stock price and investors?
Investors are choosing to invest their growing capital base in alternative assets, which diversifies their overall portfolio, reducing investment risk. Brookfield Asset Management forecasts institutional investors to allocate 60% of capital toward alternative assets by 2030, up from just 5% in 2000 and 30% in 2021.
It also expects AUM in alternatives to increase from US$4 trillion in 2010 to US$23.2 trillion in 2026, an increase of 11.6% annually.
With US$2.9 billion in cash and a debt-free balance sheet, BAM has enough liquidity to keep investing in capital projects, driving earnings and top-line growth.
Due to these trends, analysts tracking BAM stock estimate the company’s sales to increase from $6.1 billion in 2023 to $7.4 billion in 2024. Its adjusted earnings are also forecast to rise from $1.83 per share to $2.23 in this period.
Priced at 20.3 times forward earnings, BAM stock is quite cheap, given its growth estimates. Due to its compelling valuation, BAM stock has already surged 17% year to date and trades at a discount of 18% to consensus price target estimates.
