Brookfield Asset Management Can Help You Retire Wall Street Rich (NYSE:BAM)

This article was coproduced with Dividend Sensei.

World-beater blue chips cannot just help you retire rich; they can help you retire “Wall Street rich.”

That’s because they have such powerful moats and brilliant and adaptable management that no matter the challenges, they keep on compounding dividends and wealth for decades.

• How 4.6% Yielding Brookfield Asset Management Could Change Your Life.

Brad and I recommended Brookfield Asset Management Ltd. (NYSE:BAM) on December 21st, and it’s up 24% since then, in seven weeks.

But guess what? BAM is still a potentially reasonable buy today, and I personally have bought 800 more shares, bringing my family’s total to 2,300.

Let me show you the three reasons why BAM isn’t just a potentially reasonable buy today, but one of the easiest ways for you to retire Wall Street rich.

Why I Bought More BAM…Again

I bought 300 more BAM shares on February 10th, right after earnings, after buying 500 more shares a few days before.

• Why I Sold HASI And Bought More NEP And BAM

I’m not trying to time earnings or the market; I’m buying based on my family hedge fund’s spreadsheet.

DK ZEUS Income Growth Portfolio: My $1.8 Million Real Money Family Hedge Fund

Stock	Yield	Growth	Total Return	Weighting	Weighted Yield	Weighted Growth	Weighted Return
OMFL	1.7%	13.4%	15.1%	6.67%	0.1%	0.9%	1.0%
VIG	2.2%	10.0%	12.2%	6.67%	0.1%	0.7%	0.8%
SCHG	0.6%	12.8%	13.4%	6.67%	0.0%	0.9%	0.9%
SPGP	1.2%	15.2%	16.4%	6.67%	0.1%	1.0%	1.1%
SCHD	3.6%	8.6%	12.2%	6.67%	0.2%	0.6%	0.8%
EDV	3.7%	0%	3.7%	10.00%	0.4%	0.0%	0.4%
DBMF	8.5%	0%	8.5%	10.00%	0.9%	0.0%	0.9%
KMLM	9.3%	0.0%	9.3%	13.33%	1.2%	0.0%	1.2%
AMZN	0.0%	28.8%	28.8%	3.33%	0.0%	1.0%	1.0%
LOW	2.0%	20.6%	22.6%	3.33%	0.1%	0.7%	0.8%
MA	0.6%	22.6%	23.2%	3.33%	0.0%	0.8%	0.8%
ASML	0.8%	25.7%	26.5%	3.33%	0.0%	0.9%	0.9%
ADSK	0.0%	27.9%	27.9%	3.33%	0.0%	0.9%	0.9%
BTI	7.6%	9.1%	16.7%	3.33%	0.3%	0.3%	0.6%
ENB	6.8%	4.8%	11.6%	3.33%	0.2%	0.2%	0.4%
MO	8.0%	5.5%	13.5%	3.33%	0.3%	0.2%	0.5%
BAM	3.7%	21.3%	25.0%	4.17%	0.2%	0.9%	1.0%
NEP	4.4%	15.0%	19.4%	2.50%	0.1%	0.4%	0.5%
Total	3.6%	13.4%	17.0%	100.00%	4.2%	10.1%	14.3%

Click to enlarge

(Sources: DK Research Terminal, FactSet, Morningstar.)

To align NEP’s speculative quality (due to its BB credit rating) with our risk cap recommendations, I reduced the target allocation of NEP by 0.8% and moved that 0.8% to BAM.

This means that I’m making BAM the largest single holding among the individual blue chips we own.

• once the portfolio is complete

• for now, it’s overweight BTI, ENB, MO, and SCHD for extra yield.

My family now owns 2,300 shares of BAM, a 4.4% allocation, and we’ll keep buying more over time to maintain our target allocation.

By making BAM the largest holding, we’ve boosted the consensus fundamentals to 4.2% yield and 14.3% long-term returns.

• higher yield than SCHD and better long-term returns than the Nasdaq.

The Ultimate Smooth Ride During Bear Markets

Bear Market	ZEUS Income Growth	60/40	S&P	Nasdaq
2022 Stagflation	-9%	-21%	-28%	-35%
Pandemic Crash	-9%	-13%	-34%	-13%
2018	-10%	-9%	-21%	-17%
2011	4%	-16%	-22%	-11%
Great Recession	-20%	-44%	-58%	-59%
Average	-9%	-21%	-33%	-27%
Average Decline vs. Benchmark	NA	43%	27%	33%
Median	-9%	-16%	-28%	-17%
Median Decline vs. Benchmark	NA	56%	32%	53%

Click to enlarge

(Sources: Charlie Bilello, Portfolio Visualizer Premium.)

Why am I adding more BAM? It’s not because of valuation, it’s not because BAM is a coiled spring, but it is the single easiest way to earn Buffett-like returns for decades to come.

Earnings Prove BAM Is Firing On All Cylinders

• BAM is a variable dividend payer

• management targets a 90% cash flow payout ratio

• Canadian company, so 15% dividend tax withholding in taxable accounts

• none in retirement accounts

• tax credit available for taxable accounts to recoup the dividend tax withholding.

Here is the introduction to the new BAM, post-spinoff.

• Daily Blue-Chip Deal Video: Why I’m Buying 4.6% Yielding Brookfield Asset Management.

A reminder that BAM is Brookfield Asset Management and (BN) is Brookfield Corporation

• BN owns 75% of BAM

• and BAM operates all the Brookfield funds and limited partnerships (like BEP and BIP).

BAM’s only job is to run the funds, collect the fees, and then pay them out as dividends.

BN’s job is to run the overall empire, provide world-class management and operating expenses, and grow the business through M&A and invest its own money alongside clients.

BAM is a capital-light business where 75% of revenue turns into free cash flow, a free cash flow margin in the top 0.5% of all global companies.

BAM is the 2nd largest alternative asset manager, right behind Blackstone (BX), and is growing about twice as fast.

In a $350 trillion total addressable market (“TAM”) that’s doubled in the last five years, BAM is the #1 high-yield way to potentially profit from the single-biggest investment opportunity in human history.

BAM had a wonderful 2022 and is guiding for 15% growth over the next five years. Analysts expect 21.3%

Management is also guiding for around 20% annual returns for the next 20+ years, just as it has delivered for the last 40 years.

How can BAM possibly deliver 60 years of Buffett-like returns? Because alternative assets are the largest investment opportunity in history.

• infrastructure

• real estate

• private equity

• hedge funds

• private credit

• green energy

• venture capital

• insurance products

• and so much more.

Alternative asset managers like BAM are the ones who are funding the future, from cloud computing to Artificial intelligence, advanced robotics, and automation.

There’s not a megatrend in the world they aren’t in, and often they are the #1 or #2 capital providers.

BAM’s 2022 Was A Tour De Force

• fee-related earnings up 26%

• distributable earnings per share up 21%

• assets under management up 15% to $790 billion

• fee-bearing capital up 15%

• raised $93 billion in 2022, including $14 billion in Q4 alone.

BAM has over 2,000 world-class alternative asset investment pros working for it, including Howard Marks, co-founder of Oaktree Capital Management.

• A legend in private credit.

They started investing in Brazilian hydropower in 1902 and expanded their empire to more than 30 countries on five continents.

In Q4, they earned $0.35 per share in distributable earnings and are paying out $0.32 as a dividend, a payout ratio of 91%. Exactly as analysts, based on guidance, expected.

BAM’s sales were up 20% in 2022, and its margins expanded by 2%, resulting in 21% to 26% per share earnings growth.

BAM is converting 100% of fee earnings into distributable earnings, a fantastic ratio indicating great efficiency and economies of scale.

BAM’s cash flows are likely to be some of the most stable in the industry, what management calls “annuity-like” cash flows. Take a look at what is generating its fee revenue:

• 50% long-term private funds (5+ year lockups)

• 29% permanent capital vehicles

• 8% incentive distributions

• 7% liquid strategies

• 4% perpetual strategies

• 2% transactions and advisor fees.

83% of BAM’s fees are coming from long-term committed capital.

And its newest business, insurance solutions, has grown to 25% of its fees.

If BAM enters a new business line, it’s usually after many years of research and tends to dominate it quickly.

BAM has $91 billion in liquidity it can invest at the end of 2022, up from $90 billion at the end of 2021.

These are funds its clients have legally committed to.

If BAM calls the money to invest in something and they don’t provide it quickly, they will get sued.

Here is how BAM is currently invested in terms of its fee-bearing capital:

• credit and insurance solutions: $143 billion

• real estate: $103 billion

• infrastructure: $86 billion

• renewable energy: $47 billion

• private equity: $39 billion.

How did credit and insurance solutions become BAM’s #1 business? Because in 2019, Brookfield bought 64% of Oaktree Capital, an industry leader in private credit co-founded by Howard Marks, one of the greatest investors in history.

Brookfield formed Brookfield Reinsurance in 2020 and has spent several years acquiring insurance companies. When done correctly, reinvesting insurance float is a source of free or even a negative-cost permanent capital.

• Berkshire’s empire was built on well-run and profitably-priced insurance.

Brookfield’s entrance into insurance was almost perfect timing.

• rising rates instantly boost the profitability of insurance companies

• whose float is usually invested in bonds.

Brookfield got into insurance when rates were zero, and bought insurance companies before rates went up, and took earnings with them.

Now it’s sitting on a $40 billion mountain of insurance assets that are printing free cash flow and are run by some of the most conservative risk managers in the industry.

What exactly are permanent capital funds? Those would be LPs like BIP and BIPC, BEP and BEPC, and BBU and BBUC, which are publicly traded entities run by BAM.

It also has private funds only available to ultra-high-net-worth individuals and institutional clients running strategies like infrastructure debt.

Oaktree, which BAM has been slowly buying more of over time, is its largest permanent capital fund.

Oaktree pioneered opportunistic high-yield credit

• the “deep value” investing king of the bond market.

Howard Marks is the Ben Graham of the bond market, leading Brookfield’s solution to this very popular market for institutional clients.

• private credit revenue up 20% in 2022.

Why do big institutions love Brookfield? Because its private funds have generated historical net returns of 7% to 12% annually.

• beating the stock market

• with uncorrelated returns

• and virtually infinite scalability.

Bottom Line: Brookfield Is Firing On All Cylinder And The Easiest Way To Earn Buffett-Like Returns For Decades With An Attractive And Fast-Growing Yield.

BAM is guiding for 15% earnings growth over the next five years. And here’s what the eight analysts who currently cover the new BAM (after just two months) expect:

• $1.38 EPS in 2023 (up 18%)

• $1.62 EPS in 2024 (up 17%)

• $2.09 EPS in 2025 (up 29%).

BAM isn’t just a wonderful growth stock; it’s a hyper-growth stock that management says can keep growing at these rates for at least the next 20 years.

What about the variable dividend?

BAM’s dividend is expected to grow 22.3% annually through 2023, resulting in a 5.6% yield on cost in two years.

All from a hypergrowth asset manager that keeps under-promising and overdelivering and has a $350 trillion, multi-decade growth runway.

Buffett-Style Wonderful Company At A Fair Price And Hypergrowth At A Reasonable Price

• Why I’m Buying 4.6% Yielding Brookfield Asset Management.

In this intro video, I explain how I created the preliminary fair value estimate of 24.5X earnings for BAM.

• Average of analyst price target P/E and Morningstar quant fair value estimates.

That analyst/Morningstar consensus is now up to 28.5X earnings as fair value.

Metric	Historical Fair Value Multiples (all Years)	2022	2023	2024	2025	12-Month Forward Fair Value
P/E	24.50	$28.67	$33.81	$39.69	$51.21
Average		$28.67	$33.81	$39.69	$51.21	$34.60
Current Price	$34.68
Discount To Fair Value		-20.98%	-2.57%	12.62%	32.27%	-0.23%
Upside To Fair Value (including dividend)		-17.34%	-2.51%	14.45%	47.65%	3.46%
2023 EPS	2024 EPS	2022 Weighted EPS	2023 Weighted EPS	12-Month Forward EPS	Historical Average Fair Value Forward PE	Current Forward PE
$1.38	$1.62	$1.19	$0.22	$1.41	24.5	24.6

Click to enlarge

I’m sticking with the more conservative initial estimate until the market tells us what it values BAM’s greatness at.

This is a reasonable, fair-value estimate given BAM’s hyper-growth and decades-long growth runway.

• the single largest and longest growth runway of any industry

• and BAM is on track to soon become the #1 name in that industry.

Rating	Margin Of Safety For Low-Risk 11/13 SWAN Quality Companies	2023 Fair Value Price	2024 Fair Value Price	12-Month Forward Fair Value
Potentially Reasonable Buy	0%	$33.81	$39.69	$34.60
Potentially Good Buy	15%	$28.74	$33.74	$29.41
Potentially Strong Buy	25%	$25.36	$29.77	$25.95
Potentially Very Strong Buy	35%	$18.68	$25.80	$22.49
Potentially Ultra-Value Buy	45%	$18.60	$21.83	$19.03
Currently	$34.68	-2.57%	12.62%	–0.23%
Upside To Fair Value (Including Dividends)		1.18%	18.14%	3.46%

Click to enlarge

While BAM is technically pennies overvalued and thus a “hold,” it’s essentially fairly valued and offering an 18% upside potential through the end of 2024.

Assuming you’re comfortable with the risk profile.

Risk Profile: Why Brookfield Asset Management Isn’t Right For Everyone

There are no risk-free companies, and no company is right for everyone. You have to be comfortable with the fundamental risk profile.

BAM Risk Profile Summary

• regulatory risk in the dozens of countries in which it operates (120 years of experience, the most of any asset manager)

• interest rate risk (its projects are financed with non-recourse self-amortizing debt)

• operating risk: if projects fail for any reason (such as drought hitting hydropower projects), then BAM “gives up the keys” to creditors, but cash flow for BAM would be reduced

• M&A risk: Brookfield is frequently making acquisitions to expand its offerings (like insurance service in 2022)

• currency risk: BAM operates all over the world.

How do we quantify, monitor, and track such a complex risk profile? By doing what big institutions do.

Long-Term Risk Management Analysis: How Large Institutions Measure Total Risk Management

DK uses S&P Global’s global long-term risk-management ratings for our risk rating.

• S&P has spent over 20 years perfecting their risk model

• which is based on over 30 major risk categories, over 130 subcategories, and 1,000 individual metrics

• 50% of metrics are industry specific

• this risk rating has been included in every credit rating for decades.

The DK risk rating is based on the global percentile of how a company’s risk management compares to 8,000 S&P-rated companies covering 90% of the world’s market cap.

BAM scores 77th Percentile On Global Long-Term Risk Management

S&P’s risk management scores factor in things like:

• supply chain management

• crisis management

• cyber-security

• privacy protection

• efficiency

• R&D efficiency

• innovation management

• labor relations

• talent retention

• worker training/skills improvement

• occupational health & safety

• customer relationship management

• business ethics

• climate strategy adaptation

• sustainable agricultural practices

• corporate governance

• brand management.

BAM’s Long-Term Risk Management Is The 171st Best In The Master List 66th Percentile In The Master List)

Classification	S&P LT Risk-Management Global Percentile	Risk-Management Interpretation	Risk-Management Rating
BTI, ILMN, SIEGY, SPGI, WM, CI, CSCO, WMB, SAP, CL	100	Exceptional (Top 80 companies in the world)	Very Low Risk
Strong ESG Stocks	86	Very Good	Very Low Risk
Brookfield Asset Management	77	Good	Low Risk
Foreign Dividend Stocks	77	Good, Bordering On Very Good	Low Risk
Ultra SWANs	74	Good	Low Risk
Dividend Aristocrats	67	Above-Average (Bordering On Good)	Low Risk
Low Volatility Stocks	65	Above-Average	Low Risk
Master List average	61	Above-Average	Low Risk
Dividend Kings	60	Above-Average	Low Risk
Hyper-Growth stocks	59	Average, Bordering On Above-Average	Medium Risk
Dividend Champions	55	Average	Medium Risk
Monthly Dividend Stocks	41	Average	Medium Risk

Click to enlarge

(Source: DK Research Terminal.)

BAM’s risk-management consensus is in the top 34% of the world’s best blue chips and is similar to:

• Johnson & Johnson (JNJ): Ultra SWAN dividend king

• Federal Realty Investment Trust (FRT): Ultra SWAN dividend king

• Illinois Tool Works (ITW): Ultra SWAN dividend aristocrat

• Merck (MRK): Ultra SWAN

• Texas Instruments (TXN): Ultra SWAN

• McDonald’s (MCD): Super SWAN dividend aristocrat.

The bottom line is that all companies have risks, and BAM is good at managing theirs, according to S&P.

How We Monitor BAM’s Risk Profile

• Eight analysts (up from 5 on December 20th)

• two credit rating agencies

• Ten experts who collectively know this business better than anyone other than management

“When the facts change, I change my mind. What do you do, sir?”

– John Maynard Keynes.

There are no sacred cows at iREIT or Dividend Kings. Wherever the fundamentals lead, we always follow. That’s the essence of disciplined financial science, the math behind retiring rich and staying rich in retirement.

Bottom Line: I Just Bought More BAM, And You Might Want To Consider Doing The Same

Let me be clear: I’m NOT calling the bottom in BAM (I’m not a market-timer).

11/13 SWAN quality does NOT mean “can’t fall hard and fast in a bear market.”

Fundamentals are all that determine safety and quality, and my recommendations.

• over 30+ years, 97% of stock returns are a function of pure fundamentals, not luck

• in the short term; luck is 25X as powerful as fundamentals

• in the long term, fundamentals are 33X as powerful as luck.

While I can’t predict the market in the short term, here’s what I can tell you about BAM.

• the 2nd biggest alternative asset manager in the world (and growing 2X as fast as Blackstone)

• 3.7% variable dividend expected to grow at 22% over the next two years

• 25.0% long-term return potential Vs. 10.2% S&P

• management guiding for 18% to 19% long-term returns

• trading at fair value: Buffett-style “wonderful company at a fair price”

• 24.6X earnings = 1.15 PEG (hyper-growth at a fair price)

• 18% total return potential through 2024.

And this is why my family is buying as much BAM as it takes to keep it at 4.2% of our portfolio.

BAM will become our biggest single blue-chip holding, and we’ll pour millions into the global king of alternative assets as long as they continue to deliver the goods and report annual results like 2022’s.

Could BAM suffer a big decline in the coming weeks or months? Sure.

And if that happens, then my family will double down, triple down, or more. When a company is this wonderful, well-managed, and growing this fast for the next 20+ years, making it the largest stock holding isn’t just smart; it’s potentially a genius move.

Because while there are several potential ways to earn Buffett-like returns long-term, none yield a fast-growing 3.7%, and none are capable of delivering those kinds of returns for 20+ years.

That’s how BAM cannot just help you retire rich; it can potentially help you retire Wall Street rich.