Brookfield Asset Management Inc: Dividend Bonanza in Next 5 Years?
Looking for Dividend Growth? Read This
If you’ve been following this column, you’d know that here at Income Investors, we profile a lot of high-yield stocks. But other than looking for oversized current income, we are also interested in dividend growth.
You see, a company might not be offering a high dividend yield right now, but if it can raise its payout consistently, investors who purchase its shares today could earn a substantially higher yield on cost in the years ahead.
With that goal in mind, let’s check out Brookfield Asset Management Inc (NYSE:BAM).
Based in Toronto, Ontario, Canada, Brookfield Asset Management is an alternative asset manager that also happens to be one of the largest global investors in real assets. The company’s history can be traced all the way back to 1899. Today, it has over $500.0 billion in assets under management.
Brookfield Asset Management owns and operates assets with a focus on real estate, renewable power, infrastructure, private equity, and credit. And while Brookfield is a Canadian company, its shares also trade on the New York Stock Exchange. Therefore, it’s very convenient for U.S. investors to buy this foreign stock.
To make the deal even sweeter, Brookfield Asset Management declares its dividends in U.S. dollars, so American income investors don’t have to worry about exchange-rate fluctuations. Right now, BAM stock has a quarterly dividend rate of $0.16 per share, which comes out to an annual yield of 1.2%.
Obviously, this kind of yield is nothing special. But as I said, what we are looking for here is dividend growth. On that front, Brookfield Asset Management stock seems to be quite impressive.
Consider this: in 2014, Brookfield paid total dividends of $0.4534 per share. In 2018, the amount totaled $0.60 per share. That’s a 32.3% payout increase in just four years. (Source: “Distribution History,” Brookfield Asset Management Inc, last accessed October 15, 2019.)
Earlier this year, Brookfield’s board of directors approved another increase to the company’s quarterly dividend rate, this time to $0.16 per share. As a result, BAM stock is on track to pay total dividends of $0.64 per share in full-year 2019, 6.7% more than what it paid last year.
Brookfield Asset Management Inc Maintains a Safe Dividend
Other than providing strong dividend growth, Brookfield Asset Management stock also offers top-notch dividend safety. In 2018, the company generated cash available for distribution and/or reinvestment of $2.4 billion, a 27.4% increase from 2017. (Source: “Brookfield Asset Management Reports Record 2018 Net Income and FFO,” Brookfield Asset Management Inc, February 14, 2019.)
Its actual distribution to common shareholders, on the other hand, totaled $575.0 million last year. Therefore, the company had a payout ratio of 23.8%.
According to its most recent earnings report, Brookfield Asset Management generated $599.0 million in cash available for distribution and/or investment in the second quarter of 2019, which was a 33% increase year-over-year. (Source: “Brookfield Asset Management Reports Second Quarter 2019 Net Income and FFO,” Brookfield Asset Management Inc, August 8, 2019.)
During the quarter, the company paid $153.0 million in dividends to common shareholders. That translated to a payout ratio of 25.6%.
What this means is that, despite all the dividend increases over the years, the company was paying out less than 30% of its available cash. This level of dividend safety should be reassuring for risk-averse income investors.
A Dividend Bonanza in the Next Five Years?
Given the growth in Brookfield Asset Management’s business, the company should be able to return a lot more cash to investors in the near future.
In 2018, BAM’s fee-bearing capital grew 10% year-over-year to $138.0 billion. By the end of June 2019, the number further increased to $164.0 billion. And if you include Brookfield’s share of its ownership in Oaktree Capital Group, LLC (NYSE:OAK-B), you’d see that the company’s fee-bearing capital had reached a whopping $227.0 billion.
And that was just a start. According to Brookfield’s Investor Day presentation in September, management expects the company’s fee-bearing capital to continue to grow rapidly to $396.0 billion in the next five years. That would translate to a compound annual growth rate (CAGR) of 12%. (Source: “Investor Day,” Brookfield Asset Management Inc, September 26, 2019.)
Unsurprisingly, this projection implies that, as an asset manager, Brookfield will be making a lot more money in fees. In particular, management expects fee-related earnings to increase at a CAGR of 16% in the next five years.
The best part is, the company is expected to generate $6.3 billion in cash available for distribution and/or reinvestment in 2024, an amount that more than doubles today’s number.
Therefore, even if management keeps the payout ratio at the current conservative level, BAM stock is still well-positioned to deliver some sizable dividend increases.
As it stands, Brookfield Asset Management Inc presents one of the best dividend growth opportunities on the market.