A new purchase in Baby R2R‘s portfolio this time. Regular readers may be aware that I started a two-part portfolio for Baby R2R earlier this year. The first part is related to her education fund that is invested in index funds and I make regular monthly contributions to that fund and dollar-cost average over time. The second part of the portfolio is what I call her Nest Egg Fund.
The Nest Egg Fund
The idea behind the Nest Egg Fund is simple and straightforward. Contribute $100/month and let the investment compound over the next few decades. Instead of going with a taxable account in her name, I have earmarked a portion of my tax free investment account, so that I can avoid paying dividend and capital gain taxes.
The first contribution was in February where I purchased 12 shares of Bank of Montreal (BMO.TO) for her. You can read more about that transaction here. Not only has Baby R2R started earning income (she earned $10.56 in Q2 2017 in the Nest Egg Fund) but she also got her first raise! 🙂 BMO raised the dividend by 2.27% in May.
Being torn between choosing to add more shares to the BMO holding and buying a different company in order to diversify, I chose the diversification path. I bought 25 shares of Brookfield Asset Management Inc (BAM.A.TO). The company is a global asset manager and has a lot of different subsidiaries giving exposure to various parts of the economy that are hard to tap into. BAM currently yields 1.87%, which adds US$14.00 (all of BAM’s financials, including dividends are declared/issued in US$) in annual dividends.
Recent Buy Decision
- BAM is one of the largest global alternative asset manager which focuses on real assets. The focus includes real estate, renewable power, infrastructure and private equity. Each of those four subsidiaries trade as separate entities on the market (tickers: BPY, BEP, BIP and BBU), but I decided to simply go with the overall company, getting exposure to all those assets. See corp structure below.
- BAM has approx $250B under asset management, with a history of 115 years investing in 30+ countries. The company continues expanding in fee bearing capital and client base.
- To provide an example of types of investments made, some of the recent transaction include natural gas pipelines in Brazil, telecom towers in India, water collection, treatment and distribution in Brazil, hydro projects in Colombia, commercial real estate in South Korea, and so on. These are the kind of projects that are lucrative for both income and growth and hard to access as retail investors.
- I have been a shareholder in the infrastructure subsidiary (BIP) for a couple of years, and have been happy with the performance as investors seek out the alternative assets and more capital flows into the sector.
- I am confident that the real assets are a great place to be for the long haul. With a diversification between properties, renewable energy, infrastructure and private equity, and the fee bearing structure that the company employs, the company should be a rather safe investment that can grow over the years to come.
- BAM has been a cash flow machine for years. After constant dividends for years, the company started raising them and currently has a 5-year dividend growth track record. The dividend yield of 1.8% may seem low, but BAM grows the dividend faster than some of its subsidiaries, with the 1-yr, 3-yr, and 5-yr dividend compound annual growth at 9.9%, 9.8%, and 8.4% respectively.
With this purchase, Baby R2R’s Nest Egg Fund grows nicely and the forward annual dividend income reaches CAD$60.84 based on current USDCAD FX rate. What are your thoughts on this purchase. Be sure to leave your comments below.
Full Disclosure: Long BAM.A.TO, BIP.UN.TO, BMO.TO. Our full list of holdings is available here.