Wednesday, October 31, 2018

Brookfield Asset Management Inc

Sound bite for Twitter and StockTwits is: Dividend Growth Financial. On a lot of tests this is showing as being expensive. Sales have been increasing faster than EPS, in fact EPS has been going down until this year. This is the problem with this stock at present and can be considered to be a negative. However, this might also suggest that the stock price is more reasonable than it first seems. See my spreadsheet on Brookfield Asset Management Inc.

I do not own this stock of Brookfield Asset Management Inc. (TSX-BAM.A, NYSE-BAM). I used to own an earlier version of this stock as Hees International, then Edper Group and then EdperBrascan back in 1987 to 1999.

When I was updating my spreadsheet, I noticed Revenues increased by some 67%. They seem to have bought a number of companies this past year. Revenue is going up with earnings going dowe over past 3 years. However, analysts do expect that earnings will start to increase in this year. The second quarterly report says the same thing.

As you can see from the charts below, mostly the dividends have grown better in CDN$ terms, but not always. For the last 15 years dividend growth has been moderate (8% to14% range) with the US$ growth lower than the CDN$ growth over the past 10 years.

Dividend yields range from low (0% to 1% range) to moderate (2% to 3% range). The current dividend yield CDN$ is $1.46% with 5, 10 and historical median yields at 1.49%, 1.67% and 2.43%. Yield were quite high (median around 8.63%) prior to 2000. They have been travelling south ever since.

They can afford their dividends. The Dividend Payout Ratio for EPS in US$ is 42% in 2017 with 5 year coverage at 37%. The DPR for CFPS for 2017 is 9% with 5 year coverage at 20%.

Because this is a Real Estate company, the Long Term Debt/Market Cap Ratio does not really apply. What you want to ensure is that their mortgage debt is covered by cash and investments. I get a Mortgage/Cash & Investment Ratio of 0.74 for 2017 and a current one of 0.79. So, this is fine as you need this to be below 1.00.

The Liquidity Ratio is not considered important, but I do calculate it to be 1.57, which is a good ratio. I get a Debt Ratio of 1.71 which is a good one. The Leverage and Debt/Equity Ratios are 2.41 and 1.41 for 2017. These are rather normal for this sort of company.

The Total Return per year is shown below for years of 5 to 30. Under the Capital Gain column is the portion of the Total Return attributable to capital gains. Under the Dividend column is the portion of the Total Return attributable to dividends. See charts below.

This first chart is the return for the Canadian Shares in CDN$. Shareholders in Canada have done well.

Years Div. Gth Tot Ret Cap Gain Div.
5 14.36% 20.74% 17.63% 3.10%
10 8.73% 10.99% 8.84% 2.15%
15 8.76% 18.59% 15.54% 3.05%
20 4.61% 15.50% 12.56% 2.94%
25 3.67% 23.07% 15.23% 7.84%
30 4.21% 12.75% 9.30% 3.45%

This second chart is the US shares in US$ and as you can see, US shareholders have also done well.

Years Div. Gth Tot Ret Cap Gain Div.
5 8.84% 15.05% 12.25% 2.80%
10 5.98% 8.28% 6.24% 2.04%
15 10.32% 20.98% 17.16% 3.82%
20 5.19% 16.38% 13.26% 3.12%
25 3.65% 22.46% 15.29% 7.17%
30 4.27% 12.99% 9.42% 3.57%

The 5 year low, median, and high median Price/Earnings per Share Ratios are 12.61, 14.02 and 15.44. The corresponding 10 year P/E Ratios are 12.69, 15.24 and 16.98. The corresponding historical P/E Ratios are 11.47, 13.67 and 15.44. These are for CDN$. The current P/E Ratio is 27.34 based on a stock price of $53.86 CDN$ and 2018 EPS estimates of $1.97 CDN$ ($1.50 US$). The stock price testing suggests that the stock price is relatively expensive.

I get a Graham Price of $38.50 CDN$. The 10 year low, median, and high median Price/Graham Price Ratios are 0.81, 0.92 and 1.02. The current P/GP Ratio is 1.40. The stock price testing suggests that the stock price is relatively expensive.

I get a 10 year median Price/Book Value per Share Ratio of 1.34 CND$. The current P/B Ratio is 1.61 CDN$ based on $32,020M, Book Value per Share of $33.44 and a stock price of $53.86 CDN$. The current P/B Ratio is some 21% above the 10 year median ratio. The stock price testing suggests that the stock price is relatively expensive.

I get an historical median dividend yield of 2.43%. The current yield is 1.46% CDN$ based on dividends of $0.79 CDN$ and a stock price of $53.86 CDN$. The current dividend is some 40% below the historical median dividend. The stock price testing suggests that the stock price is relatively expensive.

The 10 year median dividend yield and the current yield is some 12% below this. The 5 year median is 1.49% and this current one is some 2.05% below this level. No matter how you look at this, the current stock price is high.

The 10 year median Price/Sales (Revenue) Ratio is 1.13 US$. The current P/S Ratio is 1.15 US$ based on 2018 Revenue estimate of $34,197M, Revenue per share of $35.72 and a stock price of $40.90, all in US$. The current P/S Ratio is some 1.2% above the 10 year ratio. The stock price testing suggests that the stock price is relatively reasonable but above the median.

The stock price testing results, whether in US$ or CDN$ will have basically the same results. On all tests but the P/S Ratio test this stock is showing as expensive. Even on the P/S Ratio it is showing as higher than the median. All the other ratios but the P/S Ratio is driven by earnings. The dividend yield is also about earnings as you want the dividends to increase with earnings.

When I look at analysts’ recommendations I find Buy (3) recommendations and that is all for this stock. I would have expected it to be better followed. The stock price consensus in US$ is $45.82. This implies a total return of 13.50% with 15.03% from capital gains and 1.47% from dividends based on a current US$ price of $40.90.

Josh Rudnik on Seeking Alpha does an analysis of this company. Kay Ng on Motley Fool likes this stock because of the increasing management fees. Reuben Gregg Brewer on Motley Fool explains the company’s structure. See what analysts are saying about this stock on Stock Chase. Mostly they like this company.

Brookfield Asset Management Inc is an alternative asset management company focused on property, renewable energy, infrastructure, and private equity. Its web site is here Brookfield Asset Management Inc.

The last stock I wrote about was about was Molson Coors Canada (TSX-TPX.B, NYSE-TAP) ... learn more. The next stock I will write about will be CCL Industries Inc. (TSX-CCL.B, OTC-CCDBF) ... learn more on Friday, November 2, 2018 around 5 pm. Tomorrow on my other blog I will write about Money Show 2018 – Keith Richards.... learn more on Thursday, November 1, 2018 around 5 pm.

This blog is meant for educational purposes only and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my website for stocks followed and investment notes. I have three blogs. The first talks only about specific stocks and is called Investment Talk. The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter or StockTwits. I am on Instagram. Or you can just Google #walktoronto spbrunner8166 to see my pictures.

1 comment:

  1. I sometimes read some new articles if I find them interesting. And I found this one pretty fascinating and it should go into my collection. Very good work!
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