Brickworks Limited (ASX: BKW) offers shareholders exposure to a booming housing industry that looks to have plenty of room left to run.
Operating on a 31 July financial year, Brickworks reported a strong set of results for the half year ended 31 January 2015. Here's a recap: Normalised net profit after tax jumped 17.6% to $62.8 million and earnings per share soared by 17.5% to 42.2 cents per share (cps). The strong result was achieved on record sales revenue in the key building products division which experienced growth of 15% to $340.6 million
1. Positive outlook and solid momentum
For the six months to December the Australian housing market continued to grow at double-digit rates. Detached housing commencements grew 13.5% to 59,059 and other residential commencements grew 12.8% to 38,788. Brickworks' management described this level of activity as "the highest on record."
The latest figures from the Australian Bureau of Statistics suggest the housing market remains strong with approvals running at elevated levels. Importantly for building material suppliers such as Brickworks, many of these approvals are yet to become housing starts which suggest there is still plenty of momentum to come for the sector.
2. Dividends
In financial year 2014 the group paid out a total dividend of 42 cps. At the most recent half an interim dividend of 15 cps was paid which was an increase of 1 cps on the prior corresponding period.
Brickworks has an impressive history of paying out a rising level of dividends with the pay-out steadily growing from 31 cps back in 2005 to a forecast (according to Thomson Consensus Estimates) of 47.9 cps this year.
3. Defensive
It's a good idea to consider the downside risk of an investment and not just focus on the upside potential; on this score shareholders in Brickworks are well served. In a similar vein to Wesfarmers Ltd (ASX: WES), Brickworks can be considered a conglomerate which means it enjoys numerous sources of unrelated income. This diversity comes not just from the property operations which are an adjunct to the brick making business, but particularly from its significant shareholding in Washington H. Soul Pattinson and Co. Ltd (ASX: SOL).
