Volatility can be incredibly stressful in the market. Here you are trying to keep your portfolio safe so that you can save for a house, your retirement, and even your children. And there’s the market, filled with retail investors trying to make a quick buck. It can make it feel impossible for investors to find a safe way to invest.
But when it comes to safety, an asset manager can be a safe haven, especially when considering a stock like Brookfield Asset Management (TSX:BAM). Today, let’s get into BAM stock, and why it could be the best way to build your portfolio the safe way.
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The good side
Now, BAM isn’t the traditional “safe dividend” stock. Its benefit comes from its size. BAM is huge, with a diverse and well-capitalized portfolio. The company runs a global platform that spans from infrastructure and real estate to renewable energy and private equity. This comes along with fee-bearing capital, which climbed to $563 million during the second quarter.
Fee-related earnings were up 16% year over year, and distributable earnings before realizations also grew by 13%. BAM stock even hit a record, with $177 billion of deployable earnings, giving it plenty of room to buy assets for a good price. And with no major debt due until after 2025, BAM stock has the scale and liquidity to make it more resilient than even some other large peers.
The risk
Now, “safe” doesn’t necessarily mean there isn’t any risk. The dividend stock trades at a premium valuation, currently trading at about 25 times earnings, with a price-to-book (P/B) ratio above 10. These multiples show that the fundraising, fee growth, and monetizations keep delivering. That’s the good news.
However, if deal flow slows or asset sales stumble, the share price could fall. The dividend of around 3% looks good on paper; however, the payout ratio is currently over 100%. Therefore, the dividend isn’t completely covered by earnings. That’s not great if you’re buying a stock for rock-solid dividend income.
A blend of both
Yet if you’re looking at BAM stock as a long-term buy that offers safety, security, and some income, it’s a great option. Long-term compounding comes from scale, fee growth, and opportunistic investing from the company. And management has a strong track record of monetizing assets, with the company continuing to recycle billions into higher-return opportunities.
If you’re a believer, the company can keep this up, then BAM stock offers exposure to some of the best long-term themes out there. Infrastructure, renewable power, private credit, alternative assets, these are all strong long-term growth vehicles.
Bottom line
So, is BAM stock safe? Absolutely, but again, safe doesn’t mean without risk. It has a diverse set of global assets that create a fortress balance sheet and the ability for long-term compounding. However, if your definition is predictable dividends, then this might not be for you. The growth-focused asset manager rewards patient investors, but comes with its own set of risks and complexity.
