This Dividend Stock is Set to Beat the TSX Again and Again

Buying high-quality dividend stocks during market pullbacks has long been one of the most reliable ways to build wealth. The strategy is simple: own great businesses, reinvest the income, and take advantage of volatility rather than fear it. One top candidate today is Brookfield Asset Management (TSX:BAM), a dividend stock with the potential to outperform the broader Toronto Stock Exchange (TSX) for years to come – especially when purchased on dips.

A powerful combination of income and growth

Brookfield Asset Management jumps out with a dividend yield of approximately 4.5%, roughly double the 2.3% yield offered by the iShares S&P/TSX 60 Index ETF, a common benchmark for the TSX. This elevated yield is not just a function of income – it also reflects opportunity. The stock has declined about 27% from recent highs, giving long-term investors a more attractive entry point.

More importantly, BAM has demonstrated a strong commitment to dividend growth, increasing payouts at a double-digit rate since it was spun off in 2022. This signals confidence in its business model and cash flow generation. For investors, that means rising income over time — one of the key drivers of long-term outperformance.

Why Brookfield could outpace the TSX

Historically, the TSX has delivered solid returns, with a 10-year annualized gain of about 12.5%, including cash distributions. However, Brookfield Asset Management’s forward-looking growth profile suggests it could do much better.

The company expects earnings to grow at about 20% annually over the next five years and beyond. If achieved, that level of growth alone would significantly outpace the broader market. On top of that, analyst consensus indicates the stock may be undervalued by about 20%, implying additional upside from multiple expansion – potentially adding nearly 5% annually.

When you combine earnings growth, valuation upside, and a strong dividend, Brookfield offers a compelling total return profile that could approach 25–30% annually over the next five years. While no forecast is guaranteed, the ingredients for market-beating performance are clearly in place.

Risks to understand before you invest

Of course, no investment is without risk – and Brookfield Asset Management is no exception. Its global alternative asset management business is inherently complex. The firm operates across real estate, infrastructure, renewable energy, and private equity, often using layered financing structures. Managing this kind of scale can introduce operational challenges.

That said, much of its debt is non-recourse, meaning liabilities are tied to specific assets rather than the company. At the corporate level, BAM maintains a relatively conservative balance sheet, with a long-term debt-to-capital ratio of about 21% and a solid investment-grade S&P credit rating of A-.

Other risks include regulatory complexity across global markets, reliance on key personnel, and growing exposure to cybersecurity threats as digital infrastructure investments expand. These are real risks – but they are also typical for a global leader operating at this scale.

Investor takeaway

Brookfield Asset Management combines a high and growing dividend, strong earnings growth potential, and a discounted valuation – an uncommon trio in today’s market. While risks exist, they are balanced by prudent financial management and a proven track record. For long-term investors willing to embrace risk and volatility, this dividend stock looks well-positioned to outperform the TSX again and again.

The post This Dividend Stock is Set to Beat the TSX Again and Again appeared first on The Motley Fool Canada.

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More reading

• If I Had to Pick Just One Stock to Hold Forever, This Would Be My Choice
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• 2 Dividend Stocks to Hold for the Next 5 Years
• 2 Canadian Stocks Built to Profit When the TSX Heats Up

Fool contributor Kay Ng has positions in Brookfield Asset Management. The Motley Fool recommends Brookfield Asset Management. The Motley Fool has a disclosure policy.