I’d Buy This 3.8% Yielder With My Next $2,000

These days, I’m not buying a whole lot of stock. With the markets – both Canadian and U.S. – having run so hot for so long, I’ve been putting more money into guaranteed investment certificates (GICs) and money market funds. Still, there are some stocks out there that I’m interested in, and progressively investing small sums into. In this article, I will explore one such stock that has a 3.8% yield and just put out a strong earnings release.

Brookfield Asset Management

Brookfield Asset Management (TSX: BAM) is a partially publicly traded subsidiary of Brookfield Corp (TSX: BN). I’ve held Brookfield Corp stock for a long time; I started moving into the more asset-light subsidiary when I saw U.S. interest rates rising (most of Brookfield Corp’s debt is in the U.S.). BAM invests in many of the same assets that BN does – albeit through client funds rather than its own. Because it invests other people’s money, BAM does not have as much debt as BN. I thought this a virtue, and sold some BN stock to put the funds into BAM.

Recent earnings

Brookfield Asset Management put out an earnings release a few days prior to this article being published. The release widely beat analyst expectations on revenue and narrowly beat expectations on adjusted earnings. Some highlights from the release included:

• $25 billion in investor funds raised in the third quarter.
• $123 billion raised year to date.
• $864 million in fee-related earnings, up 15% year over year.
• $763 million in distributable earnings, up 15% year over year.
• $3 billion in net income, up 328% year over year.

Overall, it was a pretty solid quarter. The company grew the actual earnings from its investment funds and paved the way for future growth through massive amounts of fundraising. All-in-all, the release gave investors much to love. It increased my confidence in the company.

Stellar profitability

One of the things that Brookfield Asset Management has going for it is profitability. Thanks to the company’s asset-light business model and almost non-existent debt, it earns very high margins. Some standout profitability metrics from the trailing 12-month period included:

• A 76% gross profit margin.
• A 67% operating income (EBIT) margin.
• A 71.2% net income margin.
• A 57% free cash flow margin.
• A 53% return on equity.
• A 16.5% return on capital.

These metrics are all best-in-class, showing that Brookfield Asset Management is a highly profitable operation.

Dividend potential

Last but certainly not least, we have Brookfield Asset Management’s dividend potential.

The last quarter’s declared dividend was US$0.50, or roughly $0.71. That works out to $2.82 per year. The stock’s price was $76.47 at the time of this writing. That gives a 3.7% yield at today’s price. So, if you invest $100,000 in BAM stock and the dividend payout doesn’t change, you get back about $3,680 per year in dividends. The table below illustrates the numbers:

So, Brookfield Asset Management is a high dividend stock that’s growing and highly profitable. It’s a formula for continued success.