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Could the projected grossed-up dividend yield of Commonwealth Bank of Australia (ASX: CBA) make the CBA share price a buy?

CBA is still the biggest bank on the ASX, ahead of Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking Group Ltd (ASX: ANZ).

However, since 8 November 2021, CBA shares have dropped around 10%. At the end of November it had actually fallen to around $93.20.

It was in the middle of November 2021 that CBA released its FY22 first quarter trading update.

FY22 first quarter trading update

The first three months of FY22 showed a statutory net profit after tax (NPAT) of $2.3 billion in the quarter.

Meanwhile, the unaudited cash net profit was $2.2 billion. That was up 20% on the first quarter of FY21, however it was down 9% on the quarterly average of the second half of FY21. The bank said that pre-provision profits were stable. Profit can have a key influence on the CBA share price.

Income was down 1%, or flat excluding the divestment of Aussie Home Loans, with above system growth helping to offset continued margin pressures and lower non-interest income. CBA said its net interest margin was “considerably lower”, with home loan price competition and the low interest rate environment affecting things. Home lending growth year on year was 7.6%.

Expenses were down 1%, with lower remediation costs offsetting higher staff expenses. The loan impairment expense was $103 million in the quarter, or 5 basis points of the average gross loans and acceptances.

In terms of its balance sheet, CBA said that its common equity tier 1 (CET1) ratio was 12.5% at 30 September 2021. After the share buy-back and second half dividend, the pro forma CET1 ratio was 11.2%.

CBA dividend expectations

Different analysts have different expectations for the CBA dividend.

Looking at Commsec, which has independent third-party estimates, CBA is expected to pay a full year dividend of $3.84 per share in FY22 and $4.03 per share in FY23. That translates to a grossed-up dividend yield of 5.5% in FY22 and 5.8% in FY23.

There are plenty of sell, or equivalent, ratings on CBA at the moment.

One of the latest negative calls has been Macquarie, which rates it as a sell/underperform. It notes the continuing price pressure in the home loan market. The broker is expecting lower dividend payments of $3.80 per share and $3.90 per share in FY22 and FY23 respectively, translating to grossed-up dividend yields of 5.5% and 5.6% respectively at the current CBA share price.

Another negative call this month has come from Morgans, which has a price target of just $73 on the business (and reckons it’s a sell), also noting the margin pressures, though increasing interest rates could help profit.

Morgans is expecting CBA to have a grossed-up dividend yield of 5.5% in FY22 and 6% in FY23.

The post Is the dividend big enough to make the CBA (ASX:CBA) share price a buy? appeared first on The Motley Fool Australia.

More reading

• Top brokers name 3 ASX shares to sell next week
• What’s happening with the CBA (ASX:CBA) share price this week?
• CBA (ASX:CBA) share price up amid another loan rate hike
• Could the CBA share price peak have been and gone?
• Top brokers name 3 ASX shares to sell next week

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. 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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Once again, a large number of broker notes hit the wires last week. Some of these notes were positive and some were bearish.

Three sell ratings that investors might want to hear about are summarised below. Here’s why top brokers think investors ought to sell these shares next week:

Commonwealth Bank of Australia (ASX: CBA)

According to a note out of Macquarie, its analysts have retained their underperform rating $86.00 price target on this banking giant’s shares. Macquarie has reduced its earnings estimates for Australia’s largest bank to reflect heightened competition for home loans, which is weighing on margins. It has also increased its costs forecasts in response to Commonwealth Bank’s recent trading update. The CBA share price was trading at $99.12 at Friday’s close.

IGO Ltd (ASX: IGO)

A note out of Morgan Stanley reveals that its analysts have retained their underweight rating and $9.70 price target on this mining company’s shares. This follows news that IGO has signed an agreement to acquire Western Areas (ASX: WSA). Morgan Stanley appears to believe IGO may not be getting value for money with the deal and management will have a lot of work to do with development projects to justify the price paid. The IGO share price ended the week at $10.91.

Qantas Airways Limited (ASX: QAN)

Analysts at Credit Suisse have retained their underperform rating but lifted their price target on this airline operator’s shares to $4.60. This follows the release of Qantas’ first half guidance which was well short of expectations. And while its net debt was better than Credit Suisse was expecting, it isn’t enough for a change of rating. The broker still doesn’t see enough value in Qantas’ shares to recommend it as a buy. The Qantas share price ended the week at $4.78.

The post Top brokers name 3 ASX shares to sell next week appeared first on The Motley Fool Australia.

More reading

• What’s happening with the CBA (ASX:CBA) share price this week?
• Brokers name 3 ASX shares to buy today
• Could Qantas (ASX:QAN) shares prove to be a compelling investment in 2022?
• Why Chorus, CSL, Qantas, and Sims shares are dropping
• Qantas (ASX:QAN) share price descends on $1.1bn half year loss guidance

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. 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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You can’t fault the S&P/ASX 200 Index (ASX: XJO) for consistency. For as long as (probably) any reader can remember, the ASX 200 has been dominated by more or less the same names.

There’s the ever-present Commonwealth Bank of Australia (ASX: CBA), as well as its big four banking brethren. Telstra Corporation Ltd (ASX: TLS) has been a mainstay for decades now. As has Woolworths Group Ltd (ASX: WOW) and Wesfarmers Ltd (ASX: WES). And BHP Group Ltd (ASX: BHP) has been listed on the ASX for more than 100 years.

Perhaps the only significant change we have seen this side of the year 2000 has been the rise of CSL Limited (ASX: CSL). Although it seems like CSL has been one of the largest ASX blue-chips for years. Remember that CSL was a $30-somethig share a decade ago.

So that’s why ASX investors might be in for a rude shock in 2022. Next year looks like the year the ASX 200 will have one of its biggest shake ups in decades.

Why? Well, for two potential reasons.

BHP set for unification

BHP is today the third-largest ASX 200 share by market capitalisation. But it could be set for a big promotion next year. As we’ve discussed on the Fool at length, BHP looks likely to initiate a stock market unification next year. BHP has said that the company intends to end its dual-listing structure on the London Stock Exchange next year, and make the ASX its sole home.

With the UK-listed shares coming home to the ASX, this would boost BHP’s ASX-listed market cap from the current $140 billion or so to more than $206 billion. That would place it easily above Commonwealth Bank’s rough market cap of $170 billion to make it the ASX’s most valuable company by far.

Block to move Down Under

Block Inc (NYSE: SQ) is the company formerly known as Square. It’s also Afterpay Ltd (ASX: APT)’s likely new owner since shareholders of both companies have now voted in favour of this marriage. As part of the acquisition deal announced back in August, Block will place a secondary listing on the ASX. This will give Afterpay shareholders the opportunity to own Block shares in the form of a CHESS Depositary Interest (CDI) on the ASX.

At Block’s closing share price of US$165.88 on Thursday evening (US time), this company has a market capitalisation of US$76.52 billion (or $106.62 billion in AUD). That gives it a higher market cap than National Australia Bank Ltd. (ASX: NAB), meaning Block could occupy a spot in the ASX 200’s top 5 holdings, or even possibly top 3. A US fintech payments giant in the top echelons of the ASX 200… Who would have thought?

The post The ASX 200 Index could be set for a huge makeover in 2022. Here’s why appeared first on The Motley Fool Australia.

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• These were the worst performers on the ASX 200 last week
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• Here are the top 10 ASX shares today
• Here are the 3 most heavily traded ASX 200 shares this Friday
• BNPL whacked! Why the Afterpay (ASX:APT) share price is down 7% to a new 52-week low today

Motley Fool contributor Sebastian Bowen owns Block, Inc., National Australia Bank Limited, and Telstra Corporation Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and has recommended AFTERPAY T FPO, Block, Inc., and CSL Ltd. The Motley Fool Australia owns and has recommended AFTERPAY T FPO, Telstra Corporation Limited, and Wesfarmers Limited. 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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Is the CSL Limited (ASX: CSL) share price a buy after the biotech recently announced an acquisition?

What is the acquisition?

CSL has announced that it and Vifor Pharma, a global pharmaceutical company with a speciality in renal disease and iron deficiency, has entered into a definitive agreement under which CSL will launch an all-cash ‘tender offer’ to buy all of Vifor Pharma shares for US$179.25 per share.

This offer is a 40% premium to the unaffected 60 trading day volume weighted average price for the shares as of 1 December 2021. This is large deal, it puts the total value of the business at A$16.4 billion.

The tender offer has been unanimously recommended for acceptance by Vifor Pharma’s board of directors. Vifor’s largest shareholder, which owns 23.2% of the business, has agreed to tender its shares.

What are the benefits of the deal for CSL and the share price?

CSL said it would expand its leadership across an attractive portfolio focused on renal disease and iron deficiency.

It also complements CSL’s existing therapeutic focus areas including haematology, thrombosis, cardiovascular and transplant, as well as having a high-quality pipeline.

CSL said that its global reach, research and development capabilities and resources will help the delivery of Vifor Pharma’s products to patients.

This is expected to add to underlying net profit (NPATA) per share in the low to mid teens in the first full year of CSL ownership – this includes the full cost synergies that are expected to be delivered.

CSL is funding the deal through a combination of debt and a capital raising.

The ASX healthcare share said that this acquisition further advances its 2030 strategy to create value by adding a high growth, cash generative and sustainable business which complements and expands the global leadership positions of CSL Behring and Seqirus.

Is the CSL share price good value when thinking about this deal?

Morgans is a fan of the deal for CSL, saying that it gives the company more growth avenues and positions it with good market share in the respective sectors.

This broker reckons that CSL shares are a buy, with a price target of $334.70. That suggests a potential upside of more than 20% over the next 12 months. At the current CSL share price, it values the healthcare company at 35x FY23’s estimated earnings.

Citi is also a fan of the deal, also rating the CSL share price as a buy, with a price target of $340. That implies a potential upside of around 25% over the next year if the broker is right. This broker thinks the deal could add around 10% to CSL’s underlying profit.

The post Is the CSL (ASX:CSL) share price a buy right now? appeared first on The Motley Fool Australia.

More reading

• Why is the CSL (ASX:CSL) share price struggling in December?
• Brokers name 3 ASX shares to buy today
• Why Chorus, CSL, Qantas, and Sims shares are dropping
• ASX 200 (ASX:XJO) midday update: CSL sinks, Qantas’ $1.1bn+ first half loss
• CSL (ASX:CSL) share price down 8% after raising US$4.5bn

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and has recommended CSL Ltd. 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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If you’re wanting to invest in the mining sector in 2022, then you may want to look at the ASX mining shares listed below.

Bell Potter has just named them among its top picks for 2022. Here’s what you need to know:

Mining outlook

Firstly, it is worth highlighting that Bell Potter remains positive on the sector.

It commented: “While the short-term outlook for base metals and iron ore has been dampened by power restrictions and high energy prices in key economies, plus the emergence of new COVID strains, the underlying thematic of tight supply-demand fundamentals remains.”

It also believes that while rising interest rates pose a risk to the gold price, it views “the gold price outlook as skewed to the upside.”

With all that in mind, here are the picks:

Chalice Mining Ltd (ASX: CHN)

Bell Potter is bullish on this mineral exploration company, largely due to its exciting Julimar project in Western Australia. It has a speculative buy and $11.73 price target on the company’s shares.

The broker commented: “The release of CHN’s maiden Resource for the Gonneville deposit at its Julimar PGE-Ni-Cu-Au project in WA confirmed its status as a world class discovery. Containing 10Moz 3E (Palladium + Platinum + Gold), 530kt Ni, 330kt Cu and 53kt Co, it remains open and prospectivity remains high. There are further opportunities for significant Resource growth along the 26km strike length of geophysical anomalies associated with the Gonneville mineralisation. We expect the Scoping Study due for release in Q2CY22 will be a material, positive catalyst, setting out a baseline development case that will be likely to grow with the Resource.”

Liontown Resources Limited (ASX: LTR)

The broker is also a fan of this lithium developer. It believes its Kathleen Valley lithium project is well-placed to benefit from high lithium prices. Bell Potter has a speculative buy and $2.15 price target on its shares.

Its analysts explained: “LTR is positioned to become a key supplier of battery raw materials and is now capable of funding Kathleen Valley’s initial development capital. The project DFS highlighted production of 658ktpa SC6 with potential for conversion into 86ktpa lithium hydroxide (75ktpa lithium carbonate equivalent, LCE). LTR is independent, debt free and with all offtake uncommitted it is in a strong strategic position in a market for lithium facing supply shortages as decarbonisation policies are enacted. Key catalysts are now signing product offtake contracts, project permitting and commencing project development.”

Regis Resources Limited (ASX: RRL)

In the gold sector, the broker is bullish on Regis Resources. It currently has a buy rating and $3.81 price target on the company’s shares.

Bell Potter commented: “RRL’s share price has continued to drift on a forecast slow start to FY22 and a lack of conviction on the gold price. However, RRL continues to be competitive with peers on operating and cost metrics and is relatively cheap on a number of valuation metrics. While Duketon and Tropicana are currently not performing at their best, we expect stronger performances in 1HCY22 and, particularly in Tropicana’s case, over the longer term. RRL offers exposure to a long-life, low-cost asset base and the opportunity of organic growth at McPhillamys lifting group production to ~700kozpa. On a riskreward basis, at these levels, we view RRL is a standout in the sector.”

The post Bell Potter names the best ASX mining shares to buy in 2022 appeared first on The Motley Fool Australia.

More reading

• 5 things to watch on the ASX 200 on Thursday
• Why did the Chalice Mining (ASX:CHN) share price slide today?
• Here are the top 10 ASX shares today
• How will Chalice Mining (ASX:CHN) shares be impacted by the Falcon spin off?
• 5 things to watch on the ASX 200 on Thursday

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. 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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Next year, 2022, could be a big year for some of the ASX tech shares according to some leading experts.

The last couple of years have been incredible times of transformation for some businesses, and the economy as a whole.

These two ASX tech shares could have a lot more for investors over the next 12 months:

Temple & Webster Group Ltd (ASX: TPW)

The online furniture and homewares business is rated as a buy by Credit Suisse with a price target of $15.89.

It was also very recently rated as a buy by UBS, with a price target of $12.20.

UBS thinks that the company will keep benefiting from the shift of consumers to buying things online. More customers are returning and buying more from the e-commerce retailer, and the business can keep adding new product lines to expand its addressable market.

Analysts and management alike believe that the business can grow revenue quickly and also increase its profit margins as it benefits from operating leverage.

The business is expecting its fixed costs to become smaller in percentage terms compared to revenue as the business gets bigger. Greater scale will also help with things like improved supplier terms, greater ranges of (private label) products, increasing marketing and even further improvements with its technology (like augmented reality).

This ASX tech share is continuing to see strong year on year growth. In FY22, from 1 July 2021 to 15 October 2021, revenue had increased 56% compared to the prior corresponding period.

It continues to invest into areas of the business to grow its online market share with the ultimate goal of becoming the largest retailer (online and offline) for furniture and homewares in its ‘home’ market.

Airtasker Ltd (ASX: ART)

Online services marketplace business Airtasker is rated as a buy by the broker Morgans. It has a price target of $1.27 – that’s more than 40% higher than where it is today.

Morgans thinks that Airtasker has good long-term growth potential.

Not only is the business growing in Australia, but it’s experiencing rapid growth internationally as well.

The FY22 first quarter saw gross marketplace volume (GMV) growth of 6.2% year on year to $35 million despite key markets (like Sydney and Melbourne) in lockdown for the quarter.

Airtasker has seen a “strong post-lockdown bounce back” with the last weekly update revealing GMV of $3.6 million, which equates to an annualised run rate of $185 million.

In the first quarter of FY22 it saw international GMV growth of more than 100%, driven by “strong growth” in the UK.

The ASX tech share is expanding in the US with its Zaarly acquisition and it’s expanding in some city markets including Dallas, Kansas City, Miami and Atlanta. Airtasker said the USA expansion was just in its early days.

It’s planning to expand its marketing expenditure significantly to grow geographically and increase its brand recognition.

The post 2 fantastic ASX tech shares tipped for big things in 2022 appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and has recommended Temple & Webster Group Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Airtasker Limited. The Motley Fool Australia has recommended Temple & Webster Group Ltd. 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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The National Australia Bank Ltd (ASX: NAB) share price has been a very positive performer this year.

Since the start of the year, the banking giant’s shares have risen 26%.

Throw in the fully franked 127 cents dividends it has paid, and you’ve got a return that smashed the benchmark.

The good news is that one leading broker still believes there’s more to come.

Three reasons the NAB share price remains good value

According to a note out of Goldman Sachs, it has a buy rating and $31.15 price target on the bank’s shares.

Based on the current NAB share price, this implies further upside of 8%. And if you add in the ~5% dividend yield Goldman is forecasting in 2022, this increases to 13%.

Why is it the broker positive on NAB?

There are three reasons for this positive sentiment. One of those is the progress it has already made with its cost cutting.

It explained: “We reiterate our Buy (on CL) on NAB and it remains our preferred sector exposure given: i) NAB’s cost management initiatives, which seem further progressed relative to peers, have freed up investment spend to be more directed towards customer experience (50% in FY22 from 39% in FY21) as opposed to infrastructure.”

Another reason the broker is positive is the bank’s strong position in business banking.

Goldman commented: ii) given NAB’s position as the largest business bank, we believe it will benefit more from the continued economic recovery (management is seeing all segments in its Business & Private Bank exhibiting solid growth without sacrificing margin, and asset quality remains pristine); 

Finally, Goldman is happy with the state of the bank’s balance sheet

It concluded: “iii) good balance sheet momentum with NAB expecting at or above system growth across all divisions.”

All in all, the NAB share price may be powering higher this year, but Goldman doesn’t believe it is too late to get in on the action.

The post Is the NAB (ASX:NAB) share price great value? Goldman thinks it is appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. 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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The new year is just around the corner. What’s the outlook for both the Coles Group Ltd (ASX: COL) share price and the dividend?

Coles has seen a mixture of challenges and successes since the start of the COVID-19 pandemic.

But despite COVID-19 now being two years old, the effects are still being felt across various parts of the economy.

How is the next 12 months looking for the supermarket business?

Current trading conditions

In the first quarter of FY22, which was the 13 weeks to 26 September 2021, Coles saw supermarket sales rise 1.8% year on year to $8.6 billion and total sales went up 1.5% to $9.76 billion.

Turning to the second quarter, the first four weeks showed comparable supermarket sales were broadly in-line with the first quarter and up approximately 8% on a two-year basis. These numbers are just helping the first half of FY22 though.

Coles was optimistic heading into Christmas, with consumer savings at an all-time high and the launch of a large range of entertaining options which the company said was good value. The supermarket business thinks it will see elevated sales as family and friends get together again.

COVID-19 costs were expected to peak in October and then start to moderate in November and December. Lower costs are expected in the second half.

Construction delays have impacted the capital expenditure program in the first half of FY22, so the business is shifting some of the capital program into FY23. In FY22, capital expenditure is now expected to be between $1.2 billion to $1.4 billion.

Coles is also facing Fair Work Ombudsman proceedings. It has incurred $13 million of remediation costs (including interest and superannuation) relating to some salaried team members, with a further $12 million provisioned in its most recent accounts.

Analyst thoughts on the Coles share price and dividend

The broker Citi thinks that Coles is a buy, with a price target of $19.60 for the next year. That implies a potential rise of just over 10%. Citi thinks it is going to take longer for things to get back to normal, which could benefit Coles.

On Citi’s numbers, Coles has a FY22 grossed-up dividend yield of 5.3%. The Coles share price is valued at 22x FY22’s estimated earnings.

Morgans also rates the business as a buy, with a price target of $19.90. This broker is expecting the supermarket business to pay a grossed-up dividend yield of 5% this financial year.

But not every analyst is positive on Coles.

UBS currently rates Coles as a sell, with a price target of $16.50. That suggests that Coles shares could fall by around 5% over the next year if the broker is right. The broker thinks that the supermarkets have seen the best of the demand conditions and that Woolworths Group Ltd (ASX: WOW) is/was achieving better results.

The post What’s the outlook for the Coles (ASX:COL) share price and dividend in 2022? appeared first on The Motley Fool Australia.

More reading

• 2 top ASX 200 dividend share picks for income
• Why is the Coles (ASX:COL) share price sinking 4% today?
• Own Coles (ASX:COL) shares? Here’s how the share price performed in November
• Why is the Metcash (ASX:MTS) share price smashing Coles this year?
• These ASX 200 dividend shares have generous fully franked yields

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns and has recommended 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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If your investment style is creating wealth by making patient long term investments, then the two ASX shares listed below could be worth a look.

Both shares have strong offerings and huge market opportunities, which many in the market believe will make them great buy and hold options. 

Here’s why analysts are bullish on them:

Life360 Inc (ASX: 360)

The first buy and hold option for investors to look at is Life360. 

Its hugely popular Life360 app is used by 33.8 million people globally for real time, location sharing and other features such as driver safety and messaging.

This alone is generating significant recurring revenues, but management isn’t settling for that. It has been actively looking for ways to monetise its enormous user base. 

This includes through offering additional services such as stolen phone protection. It has also announced the acquisition of wearables company Jiobit and items tracking company Tile. These offer material cross selling opportunities for Life360.

Bell Potter is a very big fan of Life360. It recently retained its buy rating and lifted its price target to $16.25.

Nitro Software Ltd (ASX: NTO)

This growing document productivity software company could be another ASX share to buy and hold.

The company’s popular Nitro Productivity Suite provides integrated PDF productivity and electronic signature tools to businesses of all sizes.

This is a large and growing market which is estimated to be worth $28 billion per year. And while Nitro’s annualised recurring revenues are growing quickly, it has still only captured a very small slice of the market. This gives it a huge runway for growth over the next decade.

The team at Bell Potter is also very positive on Nitro. Its analysts currently have a buy rating and $4.50 price target on its shares.

The post 2 ASX shares to buy and hold for 10 years+ appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro owns Life360, Inc. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and has recommended Life360, Inc. The Motley Fool Australia has recommended Nitro Software Limited. 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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The Brickworks Limited (ASX: BKW) share price and dividends have been growing over the years.

But there are several reasons why Brickworks could keep climbing to new heights, at a solid rate.

Investors may want to pay attention to

these three growth factors for Brickworks:

US expansion

Brickworks has grown into a very large building products provider, with exposure to a large number of offerings including bricks, paving, masonry, roofing, precast and cement.

However, Australia has a relatively small population compared to the US. The United States is where Brickworks is expanding with acquisitions and organic improvements.

Not only had the ASX share bought brick manufacturers – making it the market leader in the north east of the US – but it has also bought a brick manufacturer which has expanded its scale and earnings further.

The company is working on improving margins and efficiencies. There is a huge addressable market for Brickworks to focus on, as well as expanding into other parts of the North American market.

Property trust growth and pipeline

Brickworks is confident about one particular part of its business that is growing: its joint venture property trust with Goodman Group (ASX: GMG).

The property trust is an important and growing part of the Brickworks share price asset backing.

This is where Brickworks sells excess land into the trust. Goodman gets the land ready for construction. Then, high-quality industrial properties are built on that land.

Due to the huge demand for distribution and logistics facilities, the capital value and rental income of these properties is powering higher.

Two of the biggest and most advanced distribution centres in Australia are being built in Sydney by the property trust, for Amazon and Coles Group Ltd (ASX: COL). When these are completed, as well as others already planned, it is expected to lead to a substantial rise in the rental profit, capital value and distributions to Brickworks.

Investment conglomerate

Brickworks has been a shareholder of the investment business Washington H. Soul Pattinson and Co Ltd (ASX: SOL) for decades.

It’s a significant part of the asset backing for the Brickworks share price.

Demand for construction products can be cyclical and uncertain.

However, the Soul Pattinson investment has anchored Brickworks with defensive earnings and a reliable dividend.

Soul Pattinson has a diversified portfolio across a number of different sectors including telecommunications, resources, property, agriculture, financial services, swimming schools and so on.

Two of the biggest holdings are TPG Telecom Ltd (ASX: TPG) and Brickworks itself. Other investments include: New Hope Corporation Limited (ASX: NHC), Tuas Ltd (ASX: TUA), Apex Healthcare, Pengana Capital Ltd (ASX: PCG), Siteminder Ltd (ASX: SDR) and Bailador Technology Investments Ltd (ASX: BTI).

Some of the private investments it has are Round Oak Metals, Ampcontrol, Ironbark and Aquatic Achievers.

Soul Pattinson has grown its dividend every year since 2000.

The post Here’s why the Brickworks (ASX:BKW) share price has lots of potential appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison owns Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and has recommended Bailador Technology Investments Limited and Brickworks. The Motley Fool Australia owns and has recommended Brickworks, COLESGROUP DEF SET, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended Bailador Technology Investments Limited and TPG Telecom Limited. 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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