Brickworks Limited (ASX: BKW) could be a very interesting ASX dividend share for income-seekers.
The company boasts of creating significant shareholder value over the long-term. Since 1968, $1,000 invested in Brickworks shares could have turned into $470,000.
There are four different segments to Brickworks:
Australian building products
Brickworks has a diversified building products division in Australia. It manufactures and distributes building products across all Australian states.
Overall, this division has 29 manufacturing sites and more than 40 design centres and design studios across the country. The portfolio includes Austral Bricks, which is Australia’s largest clay brick manufacturer with significant market positions in every state. It says its concrete products portfolio comprises of names like Austral Masonry, Austral Precast and Southern Cross Cement. Bristle Roofing is another business within the Australian building products division.
This division currently has major capital projects ongoing to improve its competitive position in key markets.
Brickworks said that its Australian building products segment earnings in the first quarter of FY21 were “well ahead” of the corresponding period on steady sales revenue.
Brickworks now owns a 39.4% stake in ASX 100 company Washington H. Soul Pattinson and Co. Ltd (ASX: SOL). Brickworks has been invested in Soul Patts shares for around half a century.
Soul Patts has a diversified portfolio with sectors like telecommunications, IT, financial services, mining, energy and pharmaceuticals.
Brickworks received $56 million of dividends in FY20. Soul Patts is steadily paying higher dividends to Brickworks (and all other shareholders).
At the time of the Brickworks annual general meeting (AGM), the Soul Patts shares were worth around $2.6 billion to Brickworks.
Industrial property trust
Brickworks operates a joint venture trust with Goodman Group (ASX: GMG). The idea of the trust is for Brickworks to sell surplus operational land into the trust at market value and Goodman will fund the infrastructure works, to crate serviced land ready for development.
Once a lease pre-commitment is secured, the serviced land can then be used as security, with debt funding used to cover the cost of constructing the facilities.
The relationship is mutually beneficial, with Brickworks gaining access to Goodman’s development expertise and network of customers, and Goodman gaining access to Brickworks prime industrial land.
At the end of the FY20, the gross asset value of the property trust was $2.1 billion.
This trust is currently building two large warehouses for both Amazon and Coles Group Ltd (ASX: COL). The Amazon facility is expected to be completed by September 2021 and the Coles warehouse is expected to start construction in early 2021.
When these warehouses are finished, the property trust assets are expected to exceed $3 billion and the net rental distributions to Brickworks are expected to increase by more than 25%.
However, the Amazon and Coles facilities will cover less than 40% of the available area at Oakdale West, providing a pipeline for the trust for the next five years.
American building products
The final division of Brickworks is its building products in North America. This is made up of three acquired businesses – Glen Gery, Sioux City Brick and Lawrenceville Brick. Brickworks already has market share leadership across key states across the Northeast, Midwest and Mid-Atlantic regions.
It has 10 operating brick plants and one manufactured stone plant.
Brickworks has a plan to make this division more efficient. At the time of the AGM update, the brick plants were at a utilisation rate of 80%, up from 50%. Unit cost reductions have been achieved at most plants.
However, sales were below expectations in the first quarter of FY21.
Brickworks hasn’t cut its dividend since 1976, it has been reliable during this time.
Construction product profit can be cyclical over time, so Brickworks just funds its dividend from the cashflow received from its Soul Patts shares and the property trust.
It was one of the few companies in the ASX 200 to increase the dividend to shareholders during the worst of the COVID-19 pandemic in Australia.
At the current Brickworks share price it has a grossed-up dividend yield of 4.5%.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Brickworks and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of COLESGROUP DEF SET. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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