The CSR Limited (ASX: CSR) share price has fallen by more than 3% in 2022 and is trading at $5.90 this morning.
The broker Citi projects that CSR will pay a grossed-up dividend yield of 6.9% in FY22, so does this make the building products ASX share a buy?
For readers who haven't heard of CSR before, it's the company behind brands such as Gyprock plaster, Bradford insulation, PGH bricks and pavers, Monier roof tiles, and AFS, which is a leader in load-bearing permanent formwork solutions for external and internal concrete walls.
These days, the company is also working on innovative products to make homes more energy-efficient.
In addition, CSR is a joint venture partner in the Tomago aluminium smelter in NSW. CSR also generates earnings from its property division by redeveloping and selling surplus former manufacturing sites and industrial land.
How big is the next CSR dividend going to be?
In FY22, Citi is expecting CSR to pay a grossed-up dividend yield of 6.9% at the current CSR share price. Citi then expects CSR to pay a grossed-up dividend yield of 7.7% in FY23.
In CSR's FY22 half-year results for the six months to 30 September 2021, the company declared a fully franked dividend of 13.5 cents per share. It was a large increase from the 8.5 cents per share dividend in the prior corresponding period.
The HY22 dividend was at the top end of CSR's dividend policy. That policy is to pay dividends of between 60% to 80% of full-year net profit after tax (NPAT) before significant items. That NPAT measure grew by 30% in HY22 to $86.6 million.
Which way are profits headed?
Expectations of profit growth, or decline, can impact any company's share price and CSR is no different.
When delivering its half-year result, CSR commented that building activity grew in line with expectations during the period. The declines in high density and commercial construction partly offset the strong detached property market.
In the second half, which has fewer trading days, it's expecting activity to reflect the seasonality of the building industry. Completion times continue to lengthen, reflecting supply chain congestion, cost pressures, and labour constraints, which are impacting the broader industry.
However, CSR management thinks that the diversified nature of the business positions it well for the second half and beyond.
CSR's building products business is "performing well" in the current market and progressing its strategy to diversify and grow the business for the future.
What do analysts think of the CSR share price?
Despite the COVID-19 impacts, Citi thinks that CSR is a buy and has a share price target of $6.63. It believes that the market is undervaluing how much CSR's land is worth.
The broker Credit Suisse also thinks that CSR is a buy and has a share price target of $6.70. The broker believes CSR sales volumes will benefit with government COVID-19 restrictions lifting.
