Investors may be eyeing a potential significant dividend growth stock on Wall Street.
Brookfield Asset Management (BAM), a dividend stock that might not be widely recognized by individual investors, has demonstrated a total return of 64% since it was spun off from Brookfield Corporation in late 2022. Brookfield Corporation ranks among the largest alternative investment companies globally.
Alternative investments, which encompass assets other than stocks, bonds, or cash, present lucrative opportunities but are often accompanied by higher risk and complexity. Individual investors can face challenges accessing these investments due to limited connections or capital.
Understanding how a company like Brookfield Asset Management generates revenue, and whether its market-leading returns can yield long-term financial growth, can be complex. An in-depth analysis of the business model reveals several promising insights.
### Brookfield Asset Management’s Relationship with Brookfield Corporation
Brookfield Corporation can be likened to Canada’s version of Berkshire Hathaway. However, rather than holding full ownership of its various subsidiaries as Berkshire Hathaway does, Brookfield Corporation spins them off as publicly traded entities, while continuing to manage them as a stakeholder.
Brookfield oversees over $1 trillion in alternative assets globally, concentrating on sectors such as:
– Renewable energy and power transition
– Infrastructure
– Private equity
– Real estate
– Credit
These investments often involve tangible assets like renewable energy projects, properties, and entire businesses.
Brookfield Asset Management specializes in creating and selling private investment funds and other products to raise capital from clients. It then invests these funds in alternative assets across the Brookfield ecosystem and beyond, operating similarly to a hedge fund, but with a focus on infrastructure and private businesses rather than traditional assets like stocks.
The company earns revenue through management fees from these investments.
### The Foundations of a Prominent Dividend Growth Stock
Unlike other Brookfield subsidiaries, Brookfield Asset Management does not directly own or operate physical assets. Its business model is asset-light yet highly profitable. The company reports cash profits as distributable earnings, given its numerous non-cash items impacting earnings. Last year, Brookfield Asset Management generated $4 billion in revenue and $2.36 billion in distributable earnings, converting 59% of its revenue into cash—a figure notably higher than most companies.
The company plans to distribute 95% of its distributable earnings to shareholders. This high dividend payout ratio is feasible for Brookfield Asset Management because it requires minimal reinvestment in the business and expands by raising more capital from investors.
Its strong cash generation capability and growth suggest that Brookfield Asset Management is on track to become an outstanding dividend stock.
### Evaluating the Potential for Substantial Wealth
The potential for Brookfield Asset Management’s stock to create significant wealth exists but may not apply universally.
With an $80 billion market cap, it is unlikely to make someone wealthy from a modest $1,000 investment. Business risks include dependency on raising new capital; an economic recession or poor performance of its investment products could curtail growth if capital inflow is impeded.
Nevertheless, substantial investment upside may persist over time. The addressable market for alternative assets stands at $25 trillion today, with projections to reach $60 trillion by 2032. Brookfield Asset Management’s growth has no strict ceiling as long as it continues to attract new capital, thereby growing its assets under management (AUM) and fee revenues.
Management remains optimistic, aspiring to grow distributable earnings by 18% annually and the dividend by 15% through 2029. This growth trajectory suggests the dividend could double within that time frame. With a current yield of 3.6%, it offers a compelling blend of income and growth, potentially leading to substantial total returns when dividends are reinvested.
For investors willing to make a significant initial investment or consistently reinvest dividends, Brookfield Asset Management stands out as a promising stock with the potential to generate considerable wealth. Regardless of whether it achieves millionaire status for an individual, it certainly possesses the qualities of an exceptional dividend stock.
