Brickworks Limited (ASX: BKW) is a compelling ASX dividend share for investors focused on income.
Brickworks is a diversified building products business which sells a number of different products through multiple businesses. The company can trace its history back to 1934.
Some of those businesses include Austral Bricks, Austral Masonry, Austral Precast, Bristle Roofing, Southern Cross Cement, Urban Stone, GB Masonry and Pronto Panel.
Here are three reasons why Brickworks could be considered such a good ASX dividend share:
Dividend reliability
There are few businesses on the ASX with a dividend record like Brickworks.
The company can boast that its normal dividend has been maintained or increased every year since 1976.
When the business held its annual general meeting (AGM), Brickworks Chair Robert Millner said:
We are proud to be one of the very few S&P/ASX 200 Index (ASX: XJO) companies who have increased dividends to our shareholders during the pandemic and have not needed to raise equity or receive government support payments. Including this year’s dividend increase, we have now maintained or increased normal dividends for the last 44 years.
The ASX dividend share also boasted that it has had a strong history of total value creation.
It said that $1,000 invested in Brickworks would have grown to be worth around $470,000 at the time of the AGM.
Defensive source of cashflow for funding
Whilst Brickworks is most well known for its building products, the business essentially funds its dividends from the cashflow from its other assets.
There are two main assets that Brickworks’ dividend is supported by. One of those is the investment conglomerate Washington H. Soul Pattinson and Co. Ltd (SAX: SOL), which Brickworks now owns 39.4% of. Soul Patts has a diversified portfolio of investments, which are both listed and unlisted.
Soul Patts’ biggest investment include TPG Telecom Ltd (ASX: TPG), New Hope Corporation Limited (ASX: NHC), Australian Pharmaceutical Industries Ltd (ASX: API) and Brickworks. In terms of sectors, it’s invested across industries like financial services, resources, telecommunications, technology, energy and pharmaceuticals.
Brickworks said that Soul Patts has delivered outstanding returns over the long term and it’s expected to continue to deliver a growing stream of earnings and dividends over time.
The ASX dividend share also owns a 50% stake of a joint venture trust with Goodman Group (ASX: GMG) where Brickworks sells surplus operational land into the trust at market value and Goodman funds the infrastructure works, to create 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.
Brickworks gets access to Goodman’s development skills and its quality customers, whilst Goodman gets access to Brickworks’ prime industrial land.
The ASX dividend share is receiving steadily-growing rental profit distributions from this JV trust. Brickworks says that it’s expecting the trust’s gross assets to go up by $900 million in value and the rental profit distributions to rise by at least 25% when two huge warehouses are built for Coles Group Ltd (ASX: COL) and Amazon.
Long-term growth
At the current Brickworks share price, it has a grossed-up dividend yield of 4.5%. But that’s today’s yield. Investors who bought many years ago would be getting a much higher yield on cost thanks to the steady dividend growth. In FY20 alone the dividend rose by 4% to $0.59 per share.
As the dividends from Soul Patts and the profit distributions from the joint venture trust grow then this will be able to fund bigger Brickworks dividends over time.
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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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