BAM - Brookfield Is A 4% Yielding Retirement Dream Buy

2023-06-29 07:15:00 ET

Summary

• Brookfield Asset Management Ltd. is a top pick for investing in AI due to its involvement in data centers, broadband and telecom towers, electrical transmission lines and towers, and green energy.
• The company has a strong track record of wealth creation, with 20% annual returns for 40 years and management guidance for similar returns in the next 20 years.
• Brookfield's investments in data centers, green energy, and infrastructure make it a "picks and shovels" play for AI, providing essential components for the technology's growth.
• Brookfield is the safest way to earn a 4% yielding dividend, growing at 23% annually while profiting from AI and every other megatrend.
• Let the world's rich pay Brookfield 2% to 6% fees to make them money. You can get paid 4% for investing alongside the Warren Buffett of megatrend investing.

This article was published on Dividend Kings on Tuesday, June 27th

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This is part 5 of a 10-part series on safely and prudently investing in artificial intelligence, or AI, the potential future of everything. The series will be completed in September.

1. 11 Billion Reasons To Buy Nvidia, And 2.2 Trillion Reasons To Sell
2. 1.3 Trillion Reasons Microsoft Is A Must-Own World-Beater AI Dividend Blue Chip .
3. Google Vs. Meta: One Could Dominate The Future Of Everything
4. Amazon: The Hype Is Right .

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Today we're talking about Brookfield Asset Management Ltd. ( BAM ) and why it's my favorite high-yield AI stock. In fact, it's my favorite high-yield blue chip. In fact, it's my favorite blue chip...period.

Let me show you why I think BAM is the ultimate "must own, buy and hold forever" high-yield blue chip. Or as close as any stock is ever going to get.

The Promise Of AI

• 1.3 Trillion Reasons Microsoft Is A Must-Own World-Beater AI Dividend Blue Chip
• full analysis of the promise and perils of AI.

A very quick reminder about why reasonable people (and not just market speculators) are excited about AI.

Fact 1: This Is A Major Growth Market

According to Bloomberg, Generative AI is a $40 billion business growing 42% per year.

Fact 2: Studies Show Generative AI Has World-Changing Productivity Boosting Potential

Studies conducted on how AI affects productivity have shown an average of 3.1% and a median of 2.6% benefit.

Goldman's analysis shows between 0.3% and 2.9% long-term productivity boosts with a base case of 1.5%.

• Driving 1.5% higher GDP growth and close to 3% faster EPS growth for the S&P.

That means Goldman's base-case is that the S&P (SP500) will end up 140% higher (adjusted for inflation) in 30 years compared to a world without generative AI.

Fact 3: It's Going To Take Time For AI To Change The World

It takes several years for revolutionary technology to make its way through to the productivity, economic, and earnings results.

This recession is not going to be stopped by AI.

ChatGPT isn't going to save the stock market from this.

A recession is coming, and that means earnings are almost certain (historically 100% certain) to be 0% to 20% lower than current expectations.

Take the 2024 and 2025 consensus estimates and then blend them for a mid-2024 bear market bottom.

Want a forward-looking market? How about looking ahead to mid-2025?

Do you think the S&P is pricing in mid-2025? The market prices in 6 to 12 months, not 24.

But even if the recession began in Q1 2024 (a very conservative start date estimate), then 13 to 15 times tough earnings (current expectations - some EPS decline in recession) is the historical bear market bottom.

The historical mid-range base-case in every scenario, from an unprecedented "no EPS decline" to Morgan Stanley's base-case 20% decline, shows a significant correction in stocks.

Unless you think that for the first time in history, all the leading economic indicators are wrong, and there will not be a recession, and unless you believe that for the first time since WWII, a recession won't cause an earnings decline, and unless you think the stock market bottomed at 15.5X forward earnings (above its historical range of 13 to 15) - this wasn't the bottom.

ChatGPT isn't going to stop the coming correction. It's not impossible, it just goes against all market history, all fundamentals, and all laws of common sense, God and man. ;)

Or, as Bill Gates recently explained, in the next two years, AI hype is unlikely to match reality.

AI will likely surpass our current hype expectations over the next ten years.

• Imagine in 1995 investors trying to imagine what the internet-transformed world of 2005 looked like
• Google hadn't been invented yet, as one example.

So what does this mean for anyone trying to safety and prudently invest in AI?

Become An AI Investing Genius By Not Being An Idiot

Let me show you an example of being an idiot.

There is not objective way to rationalize this chart.

If you buy Nvidia Corporation (NVDA) for the long term, you'll likely make money. But you'll come to regret it during one of NVDA's historically normal 50% to 60% crashes.

Here is an example of investing in AI the right way.

The Anti-Stupid Way To Invest In AI

ChatGPT hasn't revoked the laws of economics, or valuation, or common sense.

ChatGPT doesn't mean that stocks grow to the sky and that there is no price too high for AI. ;)

Smart investors never forget safety and quality first, and prudent valuation and sound risk management always.

YOLOing into NVDA is never a prudent strategy, especially today.

Invert, Always Invert" - Charlie Munger.

Before making any investment, Charlie Munger, Warren Buffett's right hand for over 50 years, says you must ask, what if I'm dead wrong?

How badly could I be about to screw myself?

If you chase NVDA now or some speculative AI stock like C3.ai, Inc. (AI) or Palantir Technologies Inc. (PLTR), things could go disastrously wrong.

• 70% to 90% loss potential.

What if you buy Amazon (AMZN) at today's 40% historical discount and AI becomes another blockchain, metaverse, or Internet of Things ("IoT")?

Something with a future, but that wasn't (so far) as world-changing as expected?

At a 40% historical discount, you buy Amazon within a diversified and prudently risk-managed portfolio designed for your temperament and goals.

This strategy for investing in AI, or any investing theme, is how Buffett and Munger would do it.

Essentially no downside and pure upside.

Microsoft is a great company. AI can only make it better (more on this in a future article). If you buy Microsoft (MSFT) and AI turns out to be another metaverse, you will make money.

If AI turns into the world-changing technology that Goldman and other experts believe, you will retire rich.

That is the point I'm making.

Don't speculate by swinging for the fences with companies that live or die by AI.

If this is overhyped, you don't want to own stocks that are currently being levitated by pure "hopium."

The triumph of hope over experience" - Oscar Wilde.

This brings me to the best AI stock I know of, one that very few people realize is an AI stock at all.

Why Brookfield Is My Favorite AI Stock Of All

• Brookfield Asset Management Can Help You Retire Wall Street Rich .
• full deep dive and risk profile.

Brookfield is one of the greatest wealth creators of all time.

• 20% annual returns for 40 years.

Management is 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.

If there is a megatrend that is changing the world, Brookfield has a piece of it. If they don't already, they soon will.

In the case of AI, Brookfield is the ultimate "picks and shovels" play.

Picks and shovels refer to the fact that the people who made the most money off the California gold rush were the ones selling picks and shovels to miners. ;)

• NVDA is a pick-and-shovel stock, making AI chips
• ASML is a 2nd order pick and shovel stock, making the lasers that make NVDA chips.

But do you know what the ultimate picks and shovel stock is? Brookfield, which is 4th order picks and shovels.

• BAM is a leader in investing in cloud computing
• and infrastructure that powers cloud computing.

Without data centers, AI doesn't exist.

Without electricity, data centers and, thus, AI don't exist.

Right now, the preponderance of evidence says AI will power the world's future economy.

And data centers will power AI, which will run on green energy.

• green energy
• infrastructure (power lines)
• data centers.

Guess who is a leading investor in all three critical infrastructure strategies which will power AI? Brookfield.

If you want the world's leading experts in every megatrend managing your money, you want to invest in Brookfield.

Brookfield Corporation ( BN ) is the parent company of the entire empire.

Brookfield Asset Management is the dividend-paying part of the empire that manages the money.

When the Saudis invest with Brookfield, it's BAM that is getting those fees and paying 90% of them to investors as variable dividends that will track BAM's cash flow over time.

BAM is currently growing at 18.2% CAGR and yielding 4.1%, so 22.3% long-term consensus return potential, backed up by management guidance.

Why own BN? Which yields less and is growing no faster? I don't recommend it; BAM is all you need.

Every reason to own BN is present in BAM, with fewer downsides.

BN owns 75% of BAM and will own 83% when it completes its planned buybacks.

If you own BAM, you are investing alongside Howard Marks of Oaktree, and Bruce Flatt, the Warren Buffett of alternative asset CEOs.

The greatest investors in history are running BAM's funds, including BEP, BEPC, BIP, BIPC.

According to Harvard, Buffett used 60% leverage via insurance float to turn 12.8% annual returns from dividend blue-chips into 20% annual returns for 58 years.

BAM has been using non-recourse self-amortizing project-level debt to leverage infrastructure for 40 years, generating Buffett-like 20% returns.

BAM is, basically, an alternative asset manager/infrastructure version of Berkshire.

One with an A-credit rating and access to some of the lowest cost funding in the world.

Buffett is able to get deals no one else can get (like 8% preferred Oxy shares), and so is Brookfield.

And by owning BAM you are effectively owning some of the world's best hedge funds, but instead of paying high hedge fund fees, BAM pays you 4%!

How would you like to invest with the Warren Buffett of global infrastructure and megatrends...and get paid 4% to do it?

And remember that for the next 5 years BAM appears to have locked in growth of 15% to 20%.

It literally has rich clients who have signed contracts to invest into its funds, whenever it calls on those funds.

If BAM sees an opportunity, it can call the Saudis and say, "give us the $5 billion you contractually agreed to, and we'll invest it and start charging you fees on it."

If clients don't give them the money and start paying fees, they get sued and will lose.

That's what's so wonderful about BAM. 15% to 20% EPS growth for five years is now locked in, and management says the investing opportunities are so massive that it believes it can grow EPS by 15% to 20% for the next 20 years.

• Median analyst consensus 18.2%
• plus a 4.1% yield.

Few companies on earth can realistically deliver 20+% returns for the next few years, much less the next 20.

And none of them pay 4% dividends.

BAM is the ultimate high-yield growth stock.

One powered by nearly every megatrend in the investing world.

Brookfield is investing in renewable technologies, AI, data centers, 5G, 6G (starting in the 2030s), robotics, automation, and biotechnology.

They have the money to pay the world's smartest quants, the experts in each of these fields, to tell them the best opportunities.

And they have access to tens of billions of dollars to execute those opportunities.

BAM has $175 billion in liquidity that it can invest alongside its clients, who have contractually pledged $79 billion.

If BAM saw a great enough opportunity, it likely could muster $254 billion for investment purposes within a matter of weeks.

Or, to put it another way, BAM is an empire that literally commands the financial firepower of major nations.

Is BAM the world leader in alternative assets? No, that would be Blackstone Inc. ( BX ).

(Source: FactSet Research Terminal.)

BAM is like Pepsi (PEP) to BX's Coke (KO); it's Mastercard (MA) to BX's Visa (V).

It's Lowe's (LOW) to BX's Home Depot (HD).

• Brookfield Vs. Blackstone: One Clear High-Yield Winner .

The only reason I don't invest in BX is because its growth consensus is 9.7%.

• 4.4% yield + 9.7% growth = 14.4% long-term return potential vs. 22.3% BAM.

Estimates change over time, and BX has a slightly higher variable yield (that's likely to be less stable over time).

But if you want to own BX as another high-yield AI play through data centers, renewable energy, and infrastructure, godspeed and God bless!

Anyone investing in BX and BAM is likely to make money long term. There's as close to a guarantee as exists on Wall Street, though there are no guarantees.

What does AI need? Data. Where is that stored? Data centers.

What do data centers need? Broadband and telecom towers, and guess what BAM invests in.

What do data centers run on? Electricity requires powerlines and transmission towers, which are also BAM's area of expertise.

What will data centers run on in the future? Green energy. And who is the world leader in green energy investment? Brookfield.

Brookfield is leading the way in every part of the infrastructure needed to power an AI future.

Do you know why over 2,000 major institutions, from the Saudis to the Norwegian Pension fund to endowments like Harvard and Yale, trust Brookfield? Why they are willing to sign contracts committing to $175 billion of additional investment?

Because BAM targets 12% to 20% long-term returns that the stock market can't match, and they usually deliver on those targets.

After fees ranging from 2% to 6%, BAM's clients earn 9% to 22% returns. Most institutional funds have targets of 7% to 8%.

Alternative assets are growing at 11% per year, about 3X faster than asset management as an industry.

By 2026 this is expected to be a $23 trillion global industry, and BAM, as the #2 largest player, is expected to have about 4% market share.

This is a decades-long growth runway.

Green energy alone is a potential $150 trillion investment opportunity, the 2nd largest in human history, according to Brookfield. The only one larger is alternative asset management itself, which some analysts estimate is a $300 trillion total addressable market ("TAM") that is itself growing at double-digits.

At nearly $1 trillion in assets under management, BAM is a titan of this industry, yet it's barely scratching the surface of its potential profits.

BAM expects its fee-bearing capital, which is what is funding that fat, fast-growing dividend, to grow at 24% annually through 2027.

That's fee-bearing capital higher in 2027 than the entire company manages today!

And 83% of that is perpetual capital, just like what Berkshire Hathaway (BRK.A) enjoys.

Ever wonder why Buffett has been so successful? Because he owns insurance companies that provide rivers of investable capital. He never has to worry about investors panicking and pulling their cash out at the worst possible time.

BAM enjoys much the same advantage, with the same amazing financial results.

Why do analysts expect 18% earnings growth from BAM in the coming years? Because that's what management is guiding for, a management team that almost never misses its targets.

And do you know why management is confident it can hit 15% to 20% earnings growth? Because for the next few years, its asset growth is locked in under contract with the world's richest institutions.

BAM: The Ultimate Wonderful Company At A Fair Price

BAM 2025 Consensus Total Return Potential

Dividend growth of 22.5% over the first two year, that's the analyst consensus.

18% annual return potential through 2025.

Buffett-like returns, torrid dividend growth, and remember; BAM is guiding for 24% fee growth through 2027!

• $2.88 dividend in 2027 (assuming the consensus growth rate continues in 2026 and 2027)
• 9.1% yield on today's cost!

BAM is a dividend dream stock. The only thing to keep in mind is that it has a variable payout policy, 90% of cash flow, which means the dividend isn't going to rise every year.

• though through 2025 that's what analysts expect.

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 a company's risk management compared 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

(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: 4% Yielding Brookfield Is The Safest And Smartest AI Stock You Can Buy (And One Of The Best Stocks, Period)

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

Even Ultra SWANs and aristocrats can 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.

I can say with 80% certainty, the Marks/Templeton Wall Street certainty limit, that anyone buying BAM today, as either a high-yield investment, an AI investment, or as a pure growth investment, is likely to be thrilled with the results.

Brookfield is the ultimate optionality machine. If there is a megatrend, they also likely invest in it or plan to.

Brookfield says they can continue their historical 20% returns for the next 20 years and have locked up that growth under contract for the next five.

How would you like to be able to go back in time and invest with Warren Buffett in 1980 after it was clear that he was an investing genius?

Well, Brookfield has 40 years of returns proving they are investing geniuses.

And now you have the management guiding for 20% annual returns for the next 20 years.

AI will be a part of that, but if AI turns out to be overhyped, BAM is still likely to be a rich retirement-making world-beater blue chip buy.

What makes BAM special? Unlike buying MSFT or AMZN, world-beater blue chips with great management, BAM is almost like an ETF.

Whatever fails, they will adapt to. Whatever succeeds, they will double on.

The world's soon-to-be biggest alternative asset manager isn't going to fail. They aren't suddenly going to turn into idiots and make disastrously stupid mistakes for years on end.

Brookfield is an institution of investing excellence and one I trust to help me retire rich, my family to retire rich, and to change the world with philanthropy.

• I plan to eventually entrust them with 25% of my life savings across all my portfolios.

BAM is a secret AI stock, but the one that represents the easiest and lowest risk way to potentially earn 20% Buffett-like returns for the next few decades.

Do you know why I'm willing to entrust up to 20% of my life savings to BAM?

Because the rich will keep getting richer! That's what happens when your investments generate 12% to 20% returns, more than the stock market.

And as long as BAM exists, the rich will keep investing with them and becoming even richer!

Many people curse this wealth inequality. I say if you can't beat them, join them!

The rich are paying BAM 2% to 6% in annual fees to generate oceans of profits.

BAM is willing to pay investors like you 4% to invest alongside the Warren Buffett of alternative asset managers.

If you buy BAM, you're investing not just in AI but in every alternative asset management strategy.

You're not just investing alongside the most powerful and wealthy institutions on earth; you're able to get paid safe, generous, and fast-growing dividends while you do it.

And if you want to make the world a better place, as my family does, there is no better way than owning BAM within a diversified portfolio and donating 5% of its value every year to the single most effective charity on earth when it comes to saving lives.

That is why my family's charity fund, based around the Dividend Kings' ZEUS Income Growth Portfolio, is planning on donating $80,000 to Helen Keller International this year.

• one of GiveWell's top 4 effective charities in the world
• $3,500 to save a child's life via Vitamin-A supplementation
• the lowest cost life-saving charity you or I can donate to
• Bill Gates (the greedy SOB;) has corned the market on Polio, which is even more cost-effective at $1,430.

According to Helen Keller's communication director Helen Keller International, HKI will have two 1:1 match campaigns this year.

• Last week of August to October 12th
• Giving Tuesday (Tuesday after Thanksgiving), which is November 27th this year.

My family plans to donate the last of our final $25,000 on Giving Tuesday (which our church voted to make an unofficial holiday in which all members are encouraged to donate time and or money to charity).

• $1,750 to save a child's life
• almost as good a deal as Bill Gates gets!
• $25 per life-year saved!
• 5.2X more cost-effective than the 2nd best charity (Against Malaria).

If you invest in BAM, you're not just investing in AI; you're investing in the future of the global economy, human progress, and the ability to make the world a Star Trek utopia.

Live long and prosper;)

For further details see:

Brookfield Is A 4% Yielding Retirement Dream Buy