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Why Brickworks is a top ASX stock for income

The Brickworks Limited (ASX: BKW) share price hasn’t been getting many investors excited lately, I’d wager. After hitting an all-time high of $19.33 in March of this year, Brickworks shares have steadily trended down ever since and are resting at $16.12 at the time of writing. But this is a stock that I think every dividend or income-focused investor should at least consider for their portfolio

What does Brickworks do?

Brickworks is one of the oldest-listed companies on the ASX – it was founded in 1934. As you may have guessed from the name, Brickworks’ Building Products division makes bricks and other construction materials such as cement, masonry, roofing and timber products. Although this gives Brickworks a sturdy foundation of earnings (someone is always building or renovating something somewhere), construction is a highly volatile industry, subject to wild booms and busts.

What makes Brickworks a better buy (in my opinion) than other building suppliers like CSR Limited (ASX: CSR) or Boral Limited (ASX: BLD) is that it has two other earnings streams it can fall back on.

The first is a ‘Land and Development’ rental side-arm that the company states “exists to maximise the value of surplus land” created by the Building products business. Rental income from land is a far sturdier stream than its primary business and this helps bolster the group’s profitability when the sun isn’t shining in construction.

The second is Brickworks’ ‘Investments’ division. The company has a 43% interest in fellow ASX company Washington H. Soul Pattinson and Co. Ltd (ASX: SOL). ‘Soul-Patts’ is a diversified investment conglomerate with a stake in Brickworks’ shares in turn, as well as many other ASX businesses like TPG Telecom Ltd (ASX: TPM) and New Hope Corporation Limited (ASX: NHC). Soul Patts also has the distinction of being one of the few ASX companies to offer a dividend increase every year since 2000.

Is Brickworks a buy for income? A Foolish takeaway

Speaking of dividends, Brickworks has used its three investment arms to give shareholders a dividend rise every year since 2002 (including through the GFC). This demonstrates to me that this is a high-quality dividend business worth holding for the long-term. Brickworks shares are offering a yield of 3.41% on today’s prices, but you can expect this to rise pretty soon if the past is anything to go by.

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended Brickworks. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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