The best companies can deliver above-average total returns year after year. For example, Walmart and Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRK.B) have delivered 12% and 13% annualized returns, respectively, over the past 30 years, outpacing the S&P 500's 11%. Meanwhile, Amazon has delivered an 18% annualized return during the past 25 years, well ahead of the S&P 500's 8% return.
However, as good as those returns from these well-known companies have been, they pale in comparison with a lesser-known wealth creator: Brookfield Corporation(NYSE: BN). The Canadian investment firm has delivered an 18% annualized total return over the past 30 years, and 19% over the past 25.
Brookfield Corporation believes even better days lie ahead for its investors. Here's a closer look at its plan to make them a lot richer over the next five years and beyond.
A simple strategy
Brookfield Corporation aims to deliver 15%-plus returns over the long term for its investors. The company believes it's in a better position to achieve that goal than ever before. It has a simple plan to compound the wealth of its investors over the long term:
- Invest in good businesses.
- Run the companies well.
- Allocate excess free cash flow wisely.
- Align everyone with its long-term objectives.
- Evolve with the world around it.
Brookfield Corporation shares many similarities with Berkshire Hathaway. Like Warren Buffett's company, Brookfield has insurance operations and buys operating businesses it controls. It strives to identify high-quality businesses that it can buy for value. It seeks out those that can deploy capital in a productive way to grow their earnings. Brookfield focuses on companies with resilient earnings and strong recurring cash flows, like those in the infrastructure, real estate, and renewable energy sectors.
While Buffett strives to buy wonderful companies at a fair price, Brookfield often seeks to purchase companies in need of operational improvement. It has a more private equity mindset of fixing companies by reducing costs to improve the efficiency of the business.
The company then aims to wisely allocate the growing excess cash flows its operating businesses produce, which Buffett's company also strives to do. Brookfield reinvests money back into its operating businesses and buys new ones. It also invests in the funds managed by its alternative asset management affiliate, Brookfield Asset Management. The company typically reinvests 75% of its annual free cash flow to compound value for shareholders. It will return the remaining cash through dividends and share repurchases.
Brookfield also aims to align everyone in the organization around its long-term objectives. It focuses teams on clear goals, promotes from within, and aligns long-term compensation.
Finally, the company strives to evolve with the world around it. For example, it has created listed entities -- namely, Brookfield Renewable, Brookfield Infrastructure, and Brookfield Business -- and it has added retirement and wealth solutions businesses. It has also adapted its asset classes as the global economy has changed, adding new platforms such as data infrastructure, nuclear, and logistics.
Adding up the value
Brookfield Corporation currently estimates that it can grow its cash flow per share at a more than 20% annual rate over the next five years. That implies the company will produce about $47 billion of cumulative free cash flow over the next five years, or roughly $30 per share. That gives it a lot of cash to allocate wisely.
The company conservatively estimates that its business is worth about $84 per share today, well below the current share price of around $55. It believes its ability to allocate capital wisely should deliver annualized returns on invested capital of 16%. That should grow the underlying value of the shares to $176 by 2029. Meanwhile, given the current disconnect between the share price and the underlying value of the company, the total return potential is even higher at 29% annually.
Looking at it another way, Brookfield Corporation could grow a roughly $5,500 investment made today into about $17,600 in about five years, assuming the share price trades at the company's estimated value. That's a strong return potential from a company with a long history of growing shareholder value.
A plan to enrich investors
Brookfield Corporation has been a terrific investment over the years. The company has routinely delivered strong total returns, driven by its simple plan to grow value for its shareholders. The company believes it's in an excellent position to continue increasing value for its investors over the next five years, which makes it a great stock to buy right now if you want to grow your wealth.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Matt DiLallo has positions in Amazon, Berkshire Hathaway, Brookfield Asset Management, Brookfield Corporation, Brookfield Infrastructure Corporation, Brookfield Infrastructure Partners, Brookfield Renewable, and Brookfield Renewable Partners and has the following options: short January 2025 $60 calls on Brookfield Corporation. The Motley Fool has positions in and recommends Amazon, Berkshire Hathaway, Brookfield, Brookfield Asset Management, Brookfield Corporation, Brookfield Renewable, and Walmart. The Motley Fool recommends Brookfield Infrastructure Partners and Brookfield Renewable Partners. The Motley Fool has a disclosure policy.
