It has been a tough time for investors over the past few weeks with the share prices of many companies on the S&P/ASX 200 Index (ASX: XJO) suffering from heavy falls, leaving some investors hesitant about investing.
It is important to keep in mind that share investing is very much a long-term pursuit and that major share market corrections do occur from time to time.
In highly challenging economic conditions such as those we are now facing, diversification has become particularly important to many investors.
Here we look at one company, Brickworks Limited (ASX: BKW), which tends to suffer from less market volatility over the long term than many other ASX shares due to its high level of diversification.
Highly diversified company
Brickworks has proven to be one of the most stable and consistently performing businesses on the ASX over the past few decades, driven by its diversification across a number of divisions.
The company’s Building Products division manufactures and distributes a range of bricks and other masonry products through a portfolio of brands. It also has a Property division and owns a significant holding of Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) which provides a good dividend income stream to Brickworks.
Brickworks also owns 50% of an industrial property trust with Goodman Group (ASX: GMG) which builds and operates a range of property for industrial businesses.
Brickworks shares currently offer an attractive trailing dividend yield of 3.82%, which grosses up to 5.46% with full franking.
Potential impact from coronavirus outbreak
It is quite possible that we may see a downturn in the building industry if Australia falls into a recession, triggered by the impact on our local economy of the restrictions put in place in order to help combat the coronavirus outbreak.
However, changes to supply and demand in the building industry tend to have long lag times, meaning that any impact over the short term is likely to be minimal at this stage.
Are Brickworks shares a buy?
Brickworks is a solid and diversified business with a strong track record of fully leveraging the benefits of future upward swings in property cycles. The company is also backed by an excellent management team and a very solid balance sheet.
The coronavirus will eventually pass and our economy will return to normal over time. I believe that Brickworks is well-positioned to grow in both its Australian and US markets over the longer term due to growing populations in both markets, and the resulting continued demand for residential property.
However, keep in mind that even defensive type shares such as Brickworks can suffer from market volatility during turbulent times like these, and there is always the risk of a downturn in the building industry later in the year.
Despite this, I believe that Brickworks is a worthy addition to your buy list as long as it is purchased as part of a diversified portfolio with very much a long-term outlook in mind.
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Motley Fool contributor Phil Harpur 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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