Would you like to find a stock that you could buy and hold for decades?
Obviously finding such a stock would not be easy.
Studies show that the average stock (i.e., a typical stock picked randomly) delivers lower returns than treasuries if held over its lifetime.
So, to pick a stock that will truly be worth holding for decades, you need to do your homework.
After years of study, I believe that I have found a TSX stock that will be worth buying and holding for decades. It is an asset-light asset manager with nearly no debt and very few recurring expenses. Nevertheless, due to its extensive business relationships around the world and sterling reputation, it has an easy time attracting clients who pay it fees in exchange for investment management services. In this article, I explore the 4% yielding dividend stock I’d happily hold for multiple decades.
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Brookfield Asset Management
Brookfield Asset Management (TSX:BAM) is a Canadian alternative asset management company that manages money primarily for institutional investors like pension funds and governments. It has over a trillion dollars in assets under management, which provides it with a significant amount of fee-related income. The company also had, as of a recent report, $67 billion in committed but undrawn capital. Once invested, this sum should drive a substantial increase in fee-related earnings (i.e., in BAM’s profit).
Brookfield’s advantage
One of Brookfield Asset Management’s big advantages is that it is part of the Brookfield ecosystem. This gives it access to an unparalleled pool of potential investors from which to draw. This includes:
- Big U.S. tech companies.
- World leaders (e.g., the governments of U.S. and Qatar).
- Other large corporations.
The company’s deep relationships gives it valuable contacts which — no matter what part of the company they originate from — can be used to generate relationships for Brookfield Asset Management. So if you take Bruce Flatt, for example, he is a corporate-level executive at Brookfield Corp (TSX:BN), so he’s not directly managing BAM funds. But he’s very well connected, having met with Donald Trump to discuss building nuclear power plants for him, among other things. So Flatt’s presence likely helps Brookfield Asset Management with raising capital, even if he isn’t directly working at BAM.
Excellent financials
Of course, Brookfield Asset Management’s claim to fame is its utterly pristine financial condition, which includes:
- A 16.3% debt-to-equity ratio (i.e., virtually no debt).
- A 71% gross margin.
- A 50% net margin.
- A 57.5% free cash flow margin.
- A 31.4% return on equity.
- A 15.4% return on total capital.
These figures frankly speak for themselves, leaving no question that Brookfield Asset Management is a great company at some price. Now, whether the current price — 30 times earnings — is a good one leaves room for debate. The P/E ratio based on distributable earnings (DE) is certainly lower, but that is a non-GAAP metric that may not be totally instructive for valuation purposes. Nevertheless, it does indicate near-term dividend-paying ability. So, BAM investors will probably keep collecting their 4% dividend for the foreseeable future.
