Some investors might still be confused about Brookfield Asset Management (TSX:BAM). In December 2022, what was previously the parent company, Brookfield Asset Management, spun out 25% of the asset management business as Brookfield Asset Management. After that, the parent company was called Brookfield Corp. (TSX:BN), which owned 75% of Brookfield Asset Management and large stakes in its other publicly traded entities.
Essentially, Brookfield Asset Management is the investing arm of Brookfield Corp. Before it began meaningfully managing assets for others about 25 years ago, it had about a 75-year history in owning and operating real assets and businesses that provide essential services.
BAM is a global alternative asset manager with about US$850 billion of assets under management across renewable power and transition, infrastructure, private equity, real estate, and credit. Specifically, it operates in 30 countries across five continents. So, it’s truly diversified.
Although both stocks are expected to grow at a compound annual growth rate of north of 10%, Brookfield Asset Management stock will probably provide more stable returns than Brookfield Corp. stock because the former has a larger dividend yield. At writing, BAM offers a dividend yield of about 3.7% versus Brookfield Corp.’s dividend yield of about 0.8%.
Today, Brookfield Corp trades at a deeper discount than Brookfield Asset Management because the former is more sensitive to the economic cycle with meaningful exposure to commercial real estate. Although Brookfield Asset Management is fairly valued, it should deliver more reliable returns from a larger dividend.
Other than its decent dividend, Brookfield Asset Management has more reasons that might attract you to invest your money.
The pie is growing. From 2000 to 2021, institutional investors increased their alternative asset allocations from 5% to 30%. Brookfield Asset Management expects the allocation to grow to 60% by 2030. This would translate to growth for Brookfield Asset Management as well, since it is one of the largest alternative asset management companies in the world.
Institutional investors come back for more because BAM’s funds across a variety of real assets have historically delivered strong gross rates of returns of 13-28%. These funds in question have been running for 13-35 years, indicating the focus on long-term investments through economic cycles.
Furthermore, as a capital-light business with no debt, Brookfield Asset Management has the financial flexibility to grow its business and dividend. It has access to capital from its parent company, which includes cash inflows from premiums of its insurance solutions business. Therefore, it can target large acquisitions with little competition.
The growth stock believes it can grow at a double-digit rate and targets to double its business size over the next five years to about US$1 trillion from its current fee-bearing capital of about US$440 billion. Management anticipates to grow its fee-related earnings by 15-20% per year, as it has in the past. The dividend stock could grow its dividend at a similar rate as well. If so, the stock could potentially double in about five years. Brookfield Asset Management is a good stock for accumulation over time, especially on dips, for long-term accounts.
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* Returns as of 8/16/23
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Fool contributor Kay Ng has positions in Brookfield and Brookfield Asset Management. The Motley Fool recommends Brookfield, Brookfield Asset Management, and Brookfield Corporation. The Motley Fool has a disclosure policy.