Where Will Brookfield Asset Management Be in 5 Years?

Brookfield Asset Management (NYSE: BAM) is a large Canadian asset manager. It has a history spanning more than 100 years of investing in infrastructure on a global scale. The stock's 3.3% yield is roughly in line with U.S. peers like Blackstone (NYSE: BX) and BlackRock (NYSE: BLK). Brookfield Asset Management's price-to-earnings (P/E) ratio of 34 is in a similar range.

That sets up a very compelling growth story for investors. Brookfield Asset Management is planning to double the size of its business by 2030. If that happens, earnings and dividends are likely to increase materially. Here's what you need to know.

Can Brookfield Asset Management do it?

Before looking to the future, it is important to look to the past. In 2020, Brookfield Asset Management set out an ambitious goal to double the size of its business by 2025. In 2020, the company's fee-bearing capital stood at $277 billion. By November 2025, that figure had grown to roughly $580 billion. To be fair, it's easier to double the size of a business when it's smaller compared to when it's larger, but management has clearly demonstrated that it can expand the business.

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As an asset management company, Brookfield Asset Management earns fees for managing other people's money. As such, more assets mean more income. The company's fee-related earnings rose from $1.32 billion in 2020 to a projected $2.7 billion or so in 2025. Double the assets, and you roughly double the earnings.

This is where the next big goal comes in. By 2030, the company aims to increase its fee-bearing capital to $1.2 trillion. Fee-related earnings are projected to grow to $5.8 billion. That represents a 16% compound annual growth rate for fee-bearing capital and 17% annualized growth for fee-related earnings. Along with this, distributable earnings, which are what backs the company's dividend, are projected to rise 18% a year.

Given the proven ability to hit internal growth targets and the valuation and dividend yield of the stock today, what happens if Brookfield Asset Management hits its goal?

Brookfield Asset Management could be a big winner

Assuming Wall Street places a similar valuation on Brookfield Asset Management as it has today, 16% annual growth in fee-related earnings will double the figure in 4.25 years. So, in five years' time, at the same valuation, the stock price would need to roughly double to keep the P/E ratio at its current level of 34.

The same story holds for the dividend. If you maintain a 3.3% dividend yield and double the dividend, the share price also would need to double. With distributable earnings expanding at an annual rate of 18%, that figure would double in roughly four years. So there will be more than ample financial capacity to double the dividend during the next five years, if management hits its goals.

Brookfield Asset Management could appeal to a wide range of investors. Growth investors will appreciate the growth opportunity. Growth and income investors will appreciate the stock's growth and the income it generates. Income investors will appreciate the dividend yield. Dividend growth investors will appreciate the opportunity for dividend growth.

This isn't a slam dunk

Stepping back and looking objectively at Brookfield Asset Management's plan reveals that it comes with risks. For example, a bear market would likely hamper the company's plans. That setback, however, would likely be temporary, since bull markets have always followed bear markets. As noted, it's also easier to double the size of a business when it's smaller than when it's larger. Execution will be vital.

However, management has a proven track record and a clear plan, which includes focusing on decarbonization, deglobalization, and digitization. Those are big trends that appear likely to continue for the foreseeable future. If you have a glass-half-full attitude, Brookfield Asset Management could be the growth, income, and/or growth and income story that you've been looking for.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Blackstone and Brookfield Asset Management. The Motley Fool recommends BlackRock. The Motley Fool has a disclosure policy.