The S&P/ASX 200 Index (ASX: XJO) stock Brickworks Limited (ASX: BKW) looks like a great ASX dividend share contender for producing a strong amount of annual passive income for shareholders.
If you haven't heard of Brickworks before, you'll love the various attributes that I'm going to tell you about in this article.
I'm not about to say that Brickworks is going to become as big a business as Commonwealth Bank of Australia (ASX: CBA) and BHP Group Ltd (ASX: BHP), but I will say that Brickworks' divisions have promising long-term outlooks and this could enable pleasing dividend growth and resilience.
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Investments
Brickworks owns a significant amount of investment business in Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) shares with a 26.1% stake. It's a cross-holding partnership, with Soul Pattinson also owning a significant amount of Brickworks.
This arrangement has been going for decades and it has provided Brickworks with a defensive and fairly consistent source of earnings and dividends which offsets the largely cyclical nature of building products demand.
Soul Pattinson is invested in a number of different sectors including telecommunications, property, financial services, resources, agriculture, healthcare and swimming schools.
The investment company has grown its passive dividend income each year since 2000 for investors.
Brickworks also owns around a fifth of robotic bricklaying business FBR Ltd (ASX: FBR), though this hasn't made much of an impact for Brickworks yet.
Building products
Brickworks started out on the ASX as a large brickmaker in Australia. It's the market leader in Australia and it also manufactures a number of other building products including roofing, cement, masonry and advanced cladding systems.
In recent years the ASX 200 stock has also expanded into North America after making a few acquisitions. It's the brickmaking market leader in the northeast of the US.
The building products divisions see their earnings bounce up and down through the years, but they can benefit from long-term demand growth as the Australian (and US) population grows.
But, I think this division is also very beneficial for Brickworks shares and the long-term passive income because of the land factor.
Brickworks owns/owned parcels of land that the building products manufacturing facilities are located on. It has unlocked a lot of value with its property trust.
Industrial property trusts
Brickworks has a 50% stake in an industrial property trust that it owns alongside Goodman Group (ASX: GMG). The company's management has said that the dividends from Soul Pattinson and net rent from the property trust together fund Brickworks' passive income payments.
Brickworks has been steadily selling land it no longer needs into this trust, unlocking some of the value of the land. Goodman then builds large industrial properties on that land for tenants like Woolworths Group Ltd (ASX: WOW), Coles Group Ltd (ASX: COL) and Amazon.
When the large warehouses are complete, the trust achieves a development profit for the trust (and Brickworks) because the land is now worth more with a huge property on it. The ASX 200 stock then benefits from the (growing) rental profit that the property trust is generating.
Brickworks has identified other parcels of land it owns that can be sold into the trust over the next few years which could lead to a 54% increase of the net rent over the next five years when combined with the expected organic rental increases with its current property portfolio.
Passive income potential from the ASX 200 stock
Brickworks hasn't cut its dividend in over 45 years, which is a very impressive record and shows that the management and board want to provide shareholders with a resilient payment each year. I like the diversification offered by the Soul Pattinson shares and the property trust.
It's those factors that would make me comfortable enough to invest a large amount into Brickworks shares to make $50,000 of annual passive income.
The last two dividends from Brickworks amount to an annual dividend per share of 64 cents. To make $50,000 we'd need 78,125 Brickworks shares, which would come at a cost of $1.93 million.
I don't know about you, but I don't have almost $2 million cash waiting to be invested. So, it might be better to think of $5,000 of annual passive income from a $193,000 investment or $500 of annual dividends from a $19,300 investment.
Whatever size investment someone goes for, Brickworks could be a great candidate for long-term payouts and growth.
