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3 star building product stocks for your portfolio

With renewed activity in the building sector it pays to consider those companies best placed to prosper from supplying building materials. Whether it is new housing, development of commercial premises or renovations to existing buildings, here are three stocks all primed for growth and paying reasonable dividends.

Brickworks Limited (ASX: BKW) is Australia’s largest brick manufacturer. The company manufactures and supplies bricks, pavers, concrete masonry and roofing tiles to the building and construction industry. A reciprocal investment in Washington H Soul Pattinson and Co Ltd (ASX: SOL) has given mutual protection from any takeover. However, in September shareholders in both companies are expected to vote on de-coupling shareholdings as 48% of Brickworks is held by Washington H Soul Pattinson.

Adelaide Brighton Ltd. (ASX: ABC) is a leading integrated construction material and lime producing group of companies. It focuses on the construction, engineering, infrastructure and resource sectors in Australia.

Adelaide Brighton’s strategy involves focused vertical integration, expanding lime production and improving operational efficiency and sustainability. Achieving scale through vertical integration has increased the profitability of the business due to guaranteed plant throughput and increased volumes and higher margins. Ownership of upstream materials guarantees supply and quality while lowering costs.

CSR Limited (ASX: CSR) is one of Australia’s leading building products companies. The company has undergone a significant transformation in recent years. With the sale of the sugar business, Sucrogen, in 2010, it created a more focused building products group. I expect that improved housing market conditions will drive solid earnings growth in the medium term. Market positions in building products provide some pricing power but success is more reliant on management and competitive cost structures.

All three building products companies have sound financial positions but let’s look at the performance indicators to select the most desirable from a shareholder’s perspective. The best is Adelaide Brighton with the highest dividend yield of 5.7%, 100% franked (based on the latest interim and final dividends paid); the lowest P/E ratio of 14.5 times; and the highest return on equity of 14.3 times.

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Motley Fool contributor Chris Koenig does not own shares in any company mentioned in this article.


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