Motley Fool Australia

Why Brickworks (ASX:BKW) is a top class ASX dividend share

real estate asx share price represented by growing coin piles next to wooden house
Image source: Getty Images

Brickworks Limited (ASX: BKW) could be a really good ASX dividend share to own for the long-term.

What is Brickworks?

It’s well-known for being Australia’s biggest brickmaker with a number of different brands including Austral Bricks, Bowral Bricks, Nubrik and Daniel Robertson.

Brickworks also has a number of other products and brands. It offers masonry and stone through Urban Stone, GB Masonry and Austral Masonry. Brickworks has roofing products from Bristle Roofing. The company has specialised building products called Terracade and Pronto Panel. It sells precast with Austral Precast, cement through Southern Cross Cement and timber with Capital Battens.

But there’s a lot more to Brickworks than just Australian building products. It also has American brickmakers in its portfolio after the recent-ish acquisition of companies like Glen Gery and Sioux City Brick.

How are the building products divisions going?

Building product businesses are often cyclical. Sometimes there’s a lot of demand and sometimes there isn’t. How does that make it a good ASX dividend share? I’ll tell you after looking at the performance of the business in the half-year result. 

In Australia the company is seeing growing demand for Austral Bricks and Bristle Roofing, with all business units posting improved earnings results. Queensland in-particular is seeing a strong performance.

The Australian division saw FY21 half-year earnings before interest and tax (EBIT) increase by 60% to $16 million. An important part was a reduction in costs.

Since commissioning last financial year, Southern Cross Cement has received well over 200,000 tonnes of cement, with operational performance and returns exceeding initial forecasts.

However, the global pandemic has had a harder impact on the US but there is an increasing demand for single family housing, just like Australia. But sales for single family housing only make up 36% of the total, much less than Australia. Glen Gery’s primary exposure is non-residential building segment. The least affected of Brickworks’ regions was still down 23% in the mid-Atlantic, with many major projects delayed or cancelled.

The North American division saw half-year EBIT fall 33% to $4 million. The impact of the decline in Glen Gery’s core markets was offset by the acquisition of Redland Brick.

Brickworks’ ASX dividend share credentials

It’s not the construction division that funds the Brickworks dividend. It’s actually two other divisions that do the heavy lifting.

Brickworks hasn’t cut its dividend for 45 years, making the company one of the most stable on the ASX for income.

That dividend growth and stability is funded by its large holding of the investment conglomerate Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) which is invested in sectors like resources, telecommunications, property and financial services.

It also owns half of an industrial property trust, along with Goodman Group (ASX: GMG). Industrial real estate has been particularly resilient throughout the COVID-19 pandemic according to Brickworks. Half-year net trust income increased by 7% to $16 million.

The Brickworks share of the trust, after debt, is now worth $777 million. Works and potential opportunities continue at the property estates. The ASX dividend share explained that the completion of 171,300 square metres of facilities over the next two years will result in gross rent increasing by around $38 million, representing a 40% uplift from the current level.

At the current Brickworks share price, it has a grossed-up dividend yield of 4.1%.

These Dividend Stocks Could Be Your Next Cash Kings (FREE REPORT)

Motley Fool Australia's Dividend experts recently released a brand-new FREE report revealing 3 dividend stocks with JUICY franked dividends that could keep paying you meaty dividends for years to come.

Our team of investors think these 3 dividend stocks should be a 'must consider' for any savvy dividend investor. But more importantly, could potentially make Australian investors a heap of passive income.

Don't miss out! Simply click the link below to grab your free copy and discover these 3 high conviction stocks now.

Returns As of 15th February 2021

Motley Fool contributor Tristan Harrison owns shares of Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Brickworks and Washington H. Soul Pattinson and Company Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Related Articles…

Latest posts by Tristan Harrison (see all)