This year, I’m looking to add more dividend stocks to my portfolio. The reason for this is not so much that I’m eager for more dividend income, but that the broader markets, especially the low/no dividend tech sector, are looking increasingly pricey and risky. The big tech companies that have driven so much of the market’s returns in recent decades are now piling on debt in order to win an ongoing AI arms race. This increases the risk in the broader markets. High dividend stocks look relatively insulated from the biggest risks facing the markets today. In this article, I’ll share one (relatively) high dividend stock I’m considering adding to my portfolio right now.
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Brookfield Asset Management
Brookfield Asset Management (TSX:BAM) is a Canadian asset management company. Its stock has a 3.8% dividend yield, which is considerably higher than the Canadian markets as a whole. If you’re interested in getting more yield in your portfolio, then BAM might fit the bill. With that being said, the yield is not the main reason why I’m interested in adding more BAM to my portfolio.
A strong competitive position
The real reason why I’m interested in adding more BAM to my portfolio is because the company is among the strongest in its industry. Brookfield Asset Management has strong relationships in the worlds of finance, government, and international trade. Its managers are trusted by people and institutions that control some of the biggest portfolios in the world. Its brand is also highly respected. Asset management is mainly a sales/marketing game, and Brookfield’s stellar reputation gives it an edge that its main competitors can’t match.
High growth
Brookfield Asset Management’s competitive strength is reflected in its historical financial performance. The company’s growth rates in the last 12 months were excellent. Its revenue increased 35%, and its earnings increased 14% in that period. Also in this period, the company raised nearly $100 billion in investor money and committed much of the money to new investments. The newly raised and deployed funds provide reason to think that BAM’s observed historical growth will persist into the future.
High profitability
In addition to growing rapidly, Brookfield Asset Management is also highly profitable. The company has a 74% gross profit margin, a 49% net income margin, and a 47% free cash flow (FCF) margin. It also has a 35% return on equity, a 14% return on assets, and a 16.7% return on capital. These metrics are among the best found in the entire universe of large-cap companies.
Valuation
One area of potential concern for BAM is valuation. The stock trades at 32 times earnings, if reported net income is the way we’re measuring earnings. This is pretty high even for a company growing its earnings at 14% year over year. With that being said, reported net income might not be the best way to measure BAM’s profit. The company is an asset manager, and asset managers are often measured using a non-GAAP metric called distributable earnings (DE). Using DE instead of GAAP net income, Brookfield has a 22 P/E ratio. That’s a little high, but not necessarily for a company that is growing at a far above-average pace.
Foolish takeaway
The bottom line on Brookfield Asset Management is that it is a strong, growing, profitable company whose shares pay a lot of dividend income. In an increasingly risky market, it looks like a fairly safe bet.
