Day: January 30, 2021

Here’s why dividend investors should be interested in Brickworks (ASX:BKW) shares

bricks and mortar

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.

Investment

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.

Major investments within Soul Patts’ portfolio include TPG Telecom Ltd (ASX: TPG), New Hope Corporation Limited (ASX: NHC), Brickworks and Australian Pharmaceutical Industries Ltd (ASX: API).

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 dividend

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%.

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

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*Returns as of June 30th

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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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2 great ASX growth shares to buy

growth stocks represented by yellow ladder against pink background

There are some ASX growth shares that may be able to generate good long-term returns.

Businesses that are predominately software in nature may be a good hunting place to look:

Betashares Nasdaq 100 ETF (ASX: NDQ)

This is an exchange-traded fund (ETF) which invests in 100 of the biggest businesses on the NASDAQ, which is a stock exchange in North America.

You’ll find many of the world’s biggest technology companies within its holdings including Apple, Microsoft, Amazon, Tesla, Facebook and Alphabet. These businesses have been delivering outperformance over the long-term as the profits grow higher over time.

There are plenty of other large tech stocks within this ASX growth share’s portfolio that you’ve probably heard of including Nvidia, PayPal, Netflix, Intel and Adobe. There are also names like Broadcom, Qualcomm, Texas Instruments, Advanced Micro Devices, Intuit, Applied Materials, Booking Holdings, Intuitive Surgical, MercadoLibre, Micron Technology, Automatic Data Processing, Activision Blizzard and Zoom.

The above businesses are spread across different services like semiconductors, travel, communication, gaming, e-commerce, healthcare and so on.

Betashares Nasdaq 100 ETF has an annual management fee cost of 0.48% per annum, which is cheaper than many active fund managers, although there are some ETFs on the ASX that have lower annual fees.

The net returns of this ETF have been stronger than the ASX over the last few years. Over the last year to 31 December 2020 the net return was 34.8%. In the prior three years, the average net return was 27.4% per annum. Since inception in May 2015, Betashares Nasdaq 100 ETF has made average returns per annum of 21.4%.

Redbubble Ltd (ASX: RBL)

Redbubble is an ASX growth share that is well liked by some fund managers. It is an e-commerce platform that sells a large array of artist-produced products like apparel, stationery, housewares, bags, wall art, masks and so on. Redbubble operates both Redbubble.com and TeePublic.com.

Joseph Kim from Montgomery Investment Management said that: “While Redbubble has clearly been a “stay-at-home” trade, we believe the business has the opportunity to emerge a longer-term structural winner from COVID-19 should it capitalise in the recent spike in user and customer interest as a result of recent lockdown measures.”

At the end of FY20, Redbubble had a diversified network of 37 fulfillers across 10 countries and 41 locations. The group fulfils products close to customers, keeping shipping timelines and costs competitive. During FY20, fulfilment capacity was added in Europe, Canada and the United States.

The company added 16 new products across Redbubble in FY20, including face masks in April 2020. Each time Redbubble adds a new product line, it opens up more addressable market for the company to target.

In FY20, Redbubble saw 36% growth of marketplace revenue to $349 million. Gross profit went up 42% to $134 million. Operating earnings before interest, tax, depreciation and amortisation (EBITDA) grew 141% to $15.3 million and the ASX growth share generated $38 million of free cashflow.

At the time of the FY20 report release, Redbubble CEO Martin Hosking said: “2021 represents a year of opportunity for the business. We are positioned to build on a decade of momentum and aggressively pursue the global opportunity presented by the shift to online activity and increasing adoption of e-commerce platforms.”

In the FY21 first quarter, the company saw growth continue at a fast pace. Excluding a positive adjustment relating to delivery times, normalised marketplace revenue (paid) grew by 98% to $139.3 million and gross profit went up 118% to $59.6 million. Redbubble generated earnings before interest and tax (EBIT) of $17.2 million.

The ASX growth share plans to continue to invest in the customer experience to improve loyalty, retention and ensure long-term higher levels of growth. It wants to extend the market leadership that it currently has.

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

*Returns as of June 30th

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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 BETANASDAQ ETF UNITS. 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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Why the Vulcan Energy (ASX:VUL) share price stormed 186% higher in January

excitement surrounding asx share price rise represented by man holding slip of paper and making happy, fist up gesture

It certainly was a fantastic month for the Vulcan Energy Resources Ltd (ASX: VUL) share price in January.

The clean lithium-focused mineral exploration company’s shares rocketed 186% higher over the month.

This latest gain means the Vulcan Energy share price is now up a remarkable 3,800% since this time last year. 

Why did the Vulcan Energy share price rocket 186% higher in January?

There were a couple of catalysts helping to drive the Vulcan share price materially higher in January.

One of those was the improving outlook for lithium prices and demand thanks to President Biden’s policies on renewable energy and the growing adoption of electric vehicles.

This has given the whole lithium sector a major lift in recent months.

What else drove its shares higher?

Another catalyst is company-specific and involves the release of Vulcan’s Pre Feasibility Study (PFS) this month for its Zero Carbon Lithium Project.

This project is home to Europe’s largest lithium resource, located in the Upper Rhine Valley of Germany.

According to the study, the Zero Carbon Lithium Project has the potential to be a cutting edge, combined renewable energy and lithium hydroxide project, in the centre of Europe, with net zero carbon footprint.

The study estimates that the project has an after tax net asset value of 2.25 billion euros. This equates to approximately A$3.5 billion and is considerably more than its current market capitalisation.

Management plans to use its unique Zero Carbon Lithium process to produce both renewable geothermal energy, and lithium hydroxide, from the same deep brine source.

In doing so, it believes it will be addressing EU market requirements for lithium by reducing the high carbon and water footprint of production, and total reliance on imports, mostly from China.

Ultimately, it believes its resource can satisfy Europe’s needs for the electric vehicle transition, from a zero-carbon source, for many years to come.

Though, it will be some time before it is doing that. If everything goes to plan, management is aiming to have the project operational in 2024.

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Returns as of 6th October 2020

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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3 reasons why Rural Funds (ASX:RFF) is a strong ASX dividend share

asx rural real estate shares represented by green up trending arrow sitting in a field of green crops

Rural Funds Group (ASX: RFF) could be one of the most compelling ASX dividend shares available to Aussie investors.

Rural Funds is a farmland landlord operating through a real estate investment trust (REIT) structure.

Here are three reasons why Rural Funds could be considered as such a strong ASX dividend share:

1: Diversification

Owning Rural Funds shares isn’t like owning one farm in one location. Its properties are spread across five sectors: cattle, cropping (cotton and sugar), vineyards, almonds and macadamias.

Not only are the farms diversified by farm type, but they are also spread across different states and different climactic conditions. So far, its farms are located in five different states.

The recent tough drought period has shown why being located in different conditions is important, though none of Rural Funds’ farms were in the worst-hit areas. However, Rural Funds does own a significant number of water entitlements for tenants to use.

Rural Funds doesn’t carry any of the operational risks of the farms, that’s on the tenant.

The ASX dividend share recently announced that it was acquiring a 21,600 ML medium priority lower Fitzroy River water allocation for $32.4 million. The water will be sourced from the Rookwood Weir, which is being constructed 66km south-west of Rockhampton. This water will be applied to the development of up to 2,500 hectares of macadamia orchards and development of irrigation for cropping and cattle production.

2: Long rental contracts with quality tenants

One of the statistics to look at with REITs is the weighted average lease expiry (WALE).

That essentially means: how long does the average rental contract have left to run within the portfolio? The longer the WALE, the more income visibility and stability that the REIT has to offer.

According to Rural Funds, at 30 June 2020 (which was the end of FY20) its WALE was 10.9 years. Almonds, macadamias and cattle are the sectors with the longest leases. There are some almond farm leases that go to 2038.

3: Rental growth leading to distribution growth

Rural Funds is a particularly strong ASX dividend share because of the consistent distribution growth that it’s able to achieve. Management aim to increase the distribution by 4% per annum.

It has successfully increased its distribution by 4% each year since it listed several years ago.

Rental increases are built into the rental contracts. At the end of FY20, 41% of the rental income was subject to fixed annual rental increases of 2.5% with market reviews. Another 4% of the rental income is subject to just a fixed 2.5% annual increase per annum.

Then the next 46% of rental income has CPI linked rental increases, with another 7% being linked to CPI inflation with market reviews. The final 2% is classified as ‘other’.  

The other key way that Rural Funds achieves distribution growth is through investing in productivity improvements. For example, for cattle properties it has improved farms with water points, pasture improvements and cultivation areas. For the cropping properties it has invested in water storage and irrigated cropping.

Current yield

At the current Rural Funds share price, it has a forward FY21 distribution yield of 4.6% based on distribution guidance of 11.28 cents per unit. Another 4% increase of the distribution in FY22 would mean a yield of 4.8%.

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

*Returns as of June 30th

More reading

Motley Fool contributor Tristan Harrison owns shares of RURALFUNDS STAPLED. The Motley Fool Australia owns shares of and has recommended RURALFUNDS STAPLED. 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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