I consider an investment in Brickworks Limited (ASX: BKW) shares to be an investment in an ASX dividend giant. There's a lot to like about the company.
As an investor considering companies to own for passive income, I want to see a few different things.
Number one, I'll look for a company that can provide a good starting dividend yield that will hopefully grow from there.
Second, if I'm investing for passive income, I want the dividends to continue flowing, even during an economic downturn.
Thirdly, I would hope that the dividend can keep growing over the long term.
So how does Brickworks compare to the blue-chip bank share National Australia Bank Ltd (ASX: NAB)?
NAB is an impressive bank with a solid market share, but it's also part of a very competitive sector that strives to attract the same borrowers. This is hurting lending margins. NAB faces the additional challenge of other banks, such as Commonwealth Bank of Australia (ASX: CBA), targeting growth in business banking, which is where NAB specialises.
This dynamic could make future NAB dividend growth more challenging than in the past, in my view.
So, let's run through why I think Brickworks shares are attractive as a dividend giant.
Dividend yield
Brickworks doesn't have the largest dividend yield on the ASX, but I think it's a solid starting place, particularly given where interest rates were a few years ago and where they could be in the coming years (hopefully lower).
Don't forget, the dividend yield is just the starting yield. The yield on the initial cost can grow as dividend increases flow through to shareholders over the long term.
The ASX dividend giant recently reported its FY24 result, and the board decided to pay an annual dividend per share of 67 cents. That translates into a grossed-up dividend yield of 3.6%, including franking credits.
Dividend stability
Since 2000, the Australian economy and the ASX share market have faced a number of economic challenges, including the inflation challenge of the last few years, the COVID-hit year of 2020, the GFC, and so on.
It'd be completely understandable if a company had cut their dividend during any of those years.
Brickworks hasn't reduced its dividend payouts in a very long time — 48 years, in fact, meaning the dividend has been maintained or grown every year since then. In contrast, owners of NAB shares endured a dividend cut in 2020.
Dividend stability can never be 100 per cent guaranteed, but I like the record that the ASX dividend giant Brickworks is developing.
Dividend growth
Brickworks hasn't always consistently grown its dividend, but it's now building an increasingly impressive streak.
The business has grown its dividend every year for the past 11 years in a row. It lifted its FY24 annual dividend by 3% to 67 cents. That's not a huge growth rate, but ongoing progress is pleasing.
Brickworks essentially funds its payouts with the dividends from its investment division and the net rental profit from its property trusts.
It owns half of an industrial property trust alongside Goodman Group (ASX: GMG).
That trust is building huge warehouses on excess Brickworks land, which is unlocking rental cash flow and increasing the underlying value of the land.
Brickworks is expecting significant rental growth in the coming years as more projects are finished and rental contracts are renewed at higher rates. This could help fund further dividend growth in future years and help the business remain an ASX dividend giant.
