I have a confession to make.
I haven’t been investing heavily in stocks this year. On a net basis, I’ve actually moved more money from stocks to money market funds and GICs than I’ve put into stocks. There are several reasons for this, one being plain old re-balancing. Another is I have a feeling that markets are getting a little overheated these days.
So, despite writing about stocks many hours a week here at the Fool, I’ve not being doing a whole lot with stocks lately.
However, there is one exception that I’m very interested in. A diversified financial conglomerate with a 4.5% dividend yield. One of Canada’s biggest financial services firms, this company is involved in some of the biggest and most important asset classes today. It also has a significant opportunity set in front of it – one that might not be correlated with the public markets that I just described as overheated. In the subsequent paragraphs, I’ll explain why I might invest my next $2,000 into this stock.
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Brookfield Asset Management
Brookfield Asset Management (TSX: BAM) is a Canadian asset management company that operates heavily in the United States. It moved its headquarters to the U.S. recently, though it’s still legally a Canadian company. The company offers a variety of funds and real estate investment trusts (REITs) to high net worth investors and institutions. It is the second biggest player in alternative asset management globally after Blackstone.
It’s impossible to fully explain Brookfield Asset Management without also explaining its parent, Brookfield Corp (TSX: BN). Brookfield is a diversified financial conglomerate involved in asset management (via BAM), infrastructure, renewable energy, private equity, insurance and real estate. It owns the majority of its asset management, infrastructure and renewable subsidiaries on its balance sheet, while owning its insurance business outright.
Now, the reason you need to understand Brookfield Corp to understand BAM is not because one company owns the other, but because of the way they work together. Brookfield, or its infrastructure and renewable subsidiaries, often invest alongside BAM on the same deals. This gives BAM an edge in getting big deals done because it can pool together its own money and investors’ money, without needing to add external partner companies with differing agendas to the deals. This helps Brookfield and Brookfield Asset Management both invest profitably and retain control over companies they invest in.
Brookfield Asset Management’s edge
One of Brookfield’s big advantages in asset management is its ability to raise large sums of money. The company has raised $98 billion year to date – much of it not yet deployed – and has $1.2 trillion in assets under management (AUM), total. The funds the company has raised will contribute to growth in the future. Speaking of growth: BAM did very well on growth in the trailing 12-month (TTM) period, with revenue up 32%, operating income up 42% and earnings per share (EPS) up 14%. The progress the company is making with fundraising suggests that that growth will continue for at least another year.
Valuation
On one level, Brookfield Asset Management looks like a fairly pricey stock, trading at 26 times reported earnings. However, the company is growing quickly and the price-to-distributable earnings (DE) ratio is lower at 24. Based on growth and adjusted earnings metrics combined, Brookfield Asset Management does not look like an overly pricey stock. So, it seems like a fairly safe 4.5% dividend payer.
