Where Will Brookfield Asset Management Be in 5 Years?

Brookfield Asset Management (NYSE: BAM) has a fairly simple-to-understand business model: All it does is charge fees for managing other people's money.

The exciting part of the story is the growth that management is targeting, which is projected to result in significant dividend growth during the next five years. Here's a look at what that could mean for the stock.

Dividend yield as a valuation tool

A stock's dividend yield is simply the current annual dividend rate divided by the share price. Dividend yield is generally looked at as a way to assess the amount of income you can expect to generate from an investment. However, the math behind yield also lends itself to the metric being used as a valuation tool, as stocks often trade within yield ranges.

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This matters because maintaining the yield range after a dividend increase essentially requires a corresponding increase in stock price. That's just the basic math of dividend yield. And that is the exciting story behind Brookfield Asset Management, which has a dividend yield of about 3.2%.

That 3.2% yield, meanwhile, is similar to the yield on offer from BlackRock (NYSE: BLK) and Blackstone (NYSE: BX), two of the largest U.S. money managers. In other words, the yield isn't unusual in any way. And while the businesses are all different to some degree, the basics of each company's business model is roughly the same: charge fees for managing other people's money. It is a good comparison set for assessing whether the yield is reasonable.

Meanwhile, Brookfield Asset Management has explained that its growth expectations should help support 15% annual dividend growth through roughly 2030, or about five years. A 15% dividend growth rate would mean that the dividend could as much as double in five years. If the dividend yield were still 3.2% at the end of that period, this implies that the share price would also double.

How will Brookfield Asset Management double the dividend?

As noted, Brookfield Asset Management is an asset manager. It generates fees by managing money on behalf of others. The primary way for it to increase its earnings and dividend-paying ability is to increase the assets it manages.

Right now, the company oversees $1 trillion in assets, which is technically its assets under management (AUM), but that number isn't the one to watch. Unlike many other asset managers, Brookfield Asset Management also manages a lot of its own money. So the real figure to monitor is fee-bearing capital, which sits at about $560 billion.

The cash is spread across five different investment approaches: infrastructure, renewable power, real estate, private equity, and credit. All these are focused in some way on the three big-picture themes of decarbonization, deglobalization, and digitization. Management believes it will be able to leverage this focus to increase fee-bearing capital to $1.2 trillion by 2030.

If Brookfield Asset Management can double its fee-bearing assets, it should be able to materially increase its earnings and double its dividend. Notably, it lived up to its last five-year plan, so there's no particular reason to believe the current goals are unattainable.

Who should buy Brookfield Asset Management?

With a 3.2% dividend yield, income-focused investors should be interested in Brookfield Asset Management. With a plan for robust business growth and dividend growth, growth and income investors should also be interested.

A bear market could disrupt the company's growth plan, but if history is any guide, that would be a temporary setback. If you think long term and appreciate dividends, you don't want to overlook Brookfield Asset Management today.

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.