Is the Brickworks dividend yield of almost 5% too good to ignore?

After a dip in the Brickworks share price in 2022, the dividend yield has improved. Here’s why I like this stock.

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A man with a wry smile on his face is shown close up behind ascending piles of coins as he places another coin on top of the tallest stack representing the rising Brickworks dividend yield

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Key points

  • Brickworks has a rich history of dividend stability for its shareholders
  • The dividend growth is being funded by its investment in Soul Pattinson shares and an industrial property trust
  • The industrial property trust has enough land to keep building warehouses for at least five years

At the current Brickworks Limited (ASX: BKW) share price, the company has a grossed-up dividend yield of around 5%.

There are plenty of ASX dividend shares out there, but I think this one is too good to ignore.

It’s not easy finding businesses that have sizeable yields, while also offering growth potential.

With the Brickworks share price down by 23.5% in 2022, it could be an opportunistic time to consider this business.

Brickworks is the leading manufacturer of bricks in Australia and in the US northeast. It also has a strong position in roofing (with Bristle Roofing), masonry, and precast in Australia.

The Brickworks dividend may not offer the biggest yield around, but there are other factors to take into account.

Dividend stability

A dividend is never guaranteed. It is paid at the discretion of the company’s board of directors.

They decide what the dividend will be based on the profits the business has made.

Brickworks has one of the longest-running dividend streaks on the ASX.

Its normal dividend has been maintained or increased every year since 1976. That means it has been 46 years since normal dividends were last decreased.

The Brickworks boss says they’re “proud” of their long history of dividend growth and “the stability this provides” to shareholders.

Brickworks has increased its dividend for nine years in a row.

Growth in dividends

Ensuring the dividend is increasing is one thing, but the size of that growth is also important to know.

The Brickworks FY22 half-year result included an increase of 1 cent per share for the dividend. That may not sound like much, but it equated to a year on year increase of 5% in percentage terms.

Over many years gone by, that would have been comfortably more than inflation.

Dividend funding

Brickworks is known as a building products business, but it also has two assets helping it fund these dividend increases.

It owns a sizeable chunk of the investment house Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), which itself has a dividend growth streak going on.

Soul Pattinson owns a diversified portfolio across different asset classes and business sectors. This provides consistency and stability for Brickworks’ underlying earnings and cash flow.

Brickworks also owns a 50% share of an industrial property trust that builds large warehouses for new tenants to use. Not only is there rental growth built into the existing rental contracts, but completions help cash flow and assist in the funding of Brickworks’ dividend.

In the HY22 result, Brickworks reported that the net trust income (the rental profit) increased by 7% to $17 million.

There is enough spare land for the trust to keep building new industrial properties for at least five years.

Foolish takeaway

I think the Brickworks share price is at an attractive level. The dividend yield of close to 5% is a good shout for income. And if Brickworks keeps growing its dividend, which isn’t certain, then 5% could be just the starting point.

Motley Fool contributor Tristan Harrison has positions in Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Brickworks and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has positions in 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 Scott Phillips.

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