Some companies seem to do it all. Brookfield Asset Management (BAM) is one such company, and it intrigues me. BAM is a Canada-based company that is an alternative asset manager focusing on real estate, renewable power, infrastructure, venture capital, and private equity. BAM recently bought a financing firm, Oaktree Capital, and has also jumped into the insurance business with Brookfield Reinsurance Partners. Brookfield does business in over 30 countries and has a market cap of about $66 billion.
Normally, I focus on companies with 3% or more dividend yields. However, I will make an exception for BAM. With a dividend yield of only about 1.4%, the income is not what I am after here (mostly), but I am looking for capital appreciation. Brookfield has grown its earnings by about 10% annually over the last 10 years, and its forward 3-5 year EPS growth rate is expected to be 17.5%. That is not a bad record, and it is expected to continue. One way BAM creates value is by spinning off as separate companies different areas of its holdings. There is Brookfield Infrastructure, Brookfield Reinsurance, Brookfield Energy, and soon-to-be, Brookfield Management. The parent company takes a piece of the pie for being the umbrella for all these sub-companies and allocating capital between them.
BAM is scheduled to split into two publicly traded companies – the Manager, a pure-play asset manager, and the Corporation, which will deploy capital across its operating businesses. The Corporation will maintain a 75% ownership of the Manager. Each shareholder of BAM, when the split occurs, will receive one share of the Manager for each four BAM shares they own. Both companies will trade on the stock exchange in the future, and their share prices will hopefully appreciate.
I think BAM is a buy in the mid-to-upper-30s or less. BAM is bouncing around like all other stocks because of the market volatility so you may find a bargain on a down day. BAM’s high this year has been $62.47, and its low has been $36.93. At the time of this writing, BAM has a stock price of $40.45. The trailing P/E is 17.65, and it pays a dividend of $.56 per year, giving it a 1.4% yield. One note: as this is a Canadian company, the Canadian government does withhold 15% of your dividends in taxes. You can recoup this when you file your U.S. tax return.
After the split, the Manager company is expected to pay out a good percentage of its earnings as a dividend, hopefully generating about a 3% yield. Once the split occurs, you can allocate your money between the two stocks (Manager and Corporation) to best fit your needs – growth or income.
As always, do your due diligence and research before you buy. Full disclosure, I do own Brookfield Asset Management and may buy more soon. Sources include Schwab, Yahoo Finance, and Seeking Alpha.
(Intentional Investing is a weekly column written by Kyle Smith from Floyd County, TX, based upon his investment knowledge and does not represent the views or opinions of the Floyd County Record. You can reach Mr. Smith via email insureddividends@gmail.com)
