Brookfield Asset Management Is The Leading Real Asset Manager
Real Assets, despite a surge of popularity in recent years, are still an under-loved asset class. Real Assets include things like real estate, natural resources, and infrastructure; asset classes that tend to outperform in market downturns and provide investors with steady, predictable returns. Among the many reasons for (income) investors to love real assets are the high-barriers to entry that result in low competition, intrinsic value that is usually pegged to the dollar, and long-term contracts that ensure business far into the future.
Where the old allocation models suggested a blend of equities and fixed income to the tune of 60/40 or 70/30 the new school of thought includes a healthy representation of real assets. But which ones? Cue Brookfield Asset Management (NYSE:BAM). Brookfield Asset Management is the largest asset manager in the U.S with a narrow focus on real assets. The company has been in business for well over 100 years providing clients a variety of methods to gain exposure to real assets. If you are looking for exposure to this sector, Brookfield Asset Management is a great way to do it.
A Viral Opportunity In Brookfield Asset Management
When the selling started in February no one knew what was going to happened with the pandemic, how long it would last, or even if the global economy would survive. In the rush to preserve capital, investors literally threw the baby-out-with-the-bath-water to include real assets companies like Brookfield Asset Management. By the end of the sell-off shares were down more than 50%. The rebound from the low hasn’t been too impressive but consider this, the company issued a 3/2 stock split just after the lows were hit.
“Most of our operations continued to generate favorable operating profits, driven by their revenues being largely contracted or regulated. Despite that, some of our operating businesses were impacted by the economic shutdown in the second quarter. In addition, we recorded some non-cash revaluations, largely attributed to our real estate portfolio.” the company said in the press release.
Brookfield Asset Management was expected to see a substantial decline in quarterly revenue but the actual results were far worse. At -24.2% the $12.83 billion is about $2 billion below the consensus but there are some mitigating factors. While net revenue fell, earnings (reported as FFO or funds from operations) topped the consensus by $0.30 or just shy of 70%. Adding to this, the company had its strongest round of fund-raising ever. Fundraising increased total capital by $23 billion and fee-related earnings by 23% over the previous quarter. Total capital now tops $77 billion and is ready for deployment.
Bruce Flatt, CEO of Brookfield, stated, “We had our best fundraising period, ever; with $23 billion of capital added to our franchise, increasing total capital for deployment to $77 billion. Very strong performance in our asset management business and continued resiliency within most of our operations contributed to strong operating results.”
Brookfield Asset Management Is One Safe Dividend
The yield with Brookfield Asset Management is all that great at 1.45% but there are some things to consider. First of all, the distribution is incredibly safe with this company. The payout ratio is running in the 25% range and the balance sheet backs it up. There is plenty of cash on hand, the only worry is debt but that’s been used to fuel growth and is well managed. The second is the dividend which, when adjusted for splits, has only ever been increased. And there is a high expectation for future increases and special distributions too (not to mention a chance of future stock splits).
The Technical Outlook: Holding Steady, Waiting For A Catalyst
Shares of Brookfield Asset Management have been consolidating in a fairly narrow range over the past few weeks. The 2Q news sparked a mild sell-off, price action fell about -1.5%, but support looks firm at/near the short-term moving average. The indicators are a little weak but are consistent with support at this level. The near-term outlook is bullish, despite today’s drop, with a very bullish outlook for the long-term.
The analysts are overwhelmingly bullish on Brookfield Asset Management. Of the 12 ratings, the weakest four are neutral with the remaining 8 a buy or strong buy. The consensus price target is near $42, about $10 above current price action or upside of 33%. All the market needs now is a reason to get moving.
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