Brookfield Asset Management (BAM +2.03%) is currently offering investors an attractive 3.3% dividend yield. However, the big story for the Canadian asset manager is its plan to double the size of its business by 2030. The goal is to roughly double the dividend along the way. This has potentially huge implications for investors.
Brookfield Asset Management's yield is the key
Dividend stocks tend to trade in yield ranges because investors are buying based on the income they can generate. A dividend increase often results in the price of a stock rising, so the dividend yield, which is a simple math equation, remains the same. As noted, Brookfield Asset Management's yield is 3.3% or so right now with a share price of around $52.
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Brookfield Asset Management's annualized dividend is presently $1.75 per share. If you doubled that dividend to $3.50 per share, maintaining the stock's 3.3% yield would require the stock price to double, as well, to around $100. Again, this is just how the math of dividend yields works out. The only other option is that the yield goes up, doubling to 6.6%. In that situation, however, dividend investors would benefit from a material increase in the income they generate, even if they do not benefit from a rise in the stock price. That's hardly a bad outcome.
This is not a hypothetical discussion around this Canadian asset manager. Brookfield Asset Management plans to double the size of its business between 2025 and 2030. That's not an unrealistic goal, either, noting that management doubled the size of the business between 2020 and 2025. That growth will allow for fee-bearing earnings growth of 17% a year and dividend growth that could be as high as 15% a year. At 15%, the dividend will double in roughly five years.
How will Brookfield Asset Management double in size?
Doubling the size of a business is no small feat, even if a company has already done that once. However, Brookfield Asset Management's plan is fairly simple. It currently operates around five key platforms: infrastructure, renewable power, real estate, private equity, and credit. Each business is expected to increase the assets it oversees. That, in turn, will lead to growth in the fee-bearing capital that supports the dividend.
Furthermore, each platform is focused on three primary investment opportunities: decarbonization, de-globalization, and digitization. These are big-picture trends that management believes represent a collective opportunity of $100 trillion. The goal of doubling the business only requires Brookfield Asset Management to bring in another $500 billion or so in capital, a tiny fraction of the opportunity size it foresees.
NYSE: BAM
Key Data Points
Management will need to execute at a high level to achieve its goals. And a bear market would be a material headwind, should one occur in the next five years. Therefore, there are risks that Brookfield Asset Management may not meet its five-year plan. However, given the company's history, it seems highly likely that setbacks would merely delay the plan, rather than derail it entirely. And don't forget that a strong bull market thrown into the mix would make the task easier, so the issue of the market environment isn't all negative.
Brookfield Asset Management is a growth and income stock
While Brookfield Asset Management's dividend yield is attractive, the real story is dividend growth. If the expected growth in the business and the dividend come to pass, the stock price should respond in a very positive fashion, perhaps even doubling to $100. If you like dividends, dividend growth, or even just growth, you'll likely find Brookfield Asset Management a compelling investment opportunity today.
