Brickworks shares are popular for dividends. This article will outline three reasons that supports Brickworks as an income option.
Reason 1: Attractive dividend characteristics
The Brickworks dividend yield is materially higher than the official interest rate which the Reserve Bank of Australia (RBA) maintained at just 0.10% this month.
At the current Brickworks share price of $19.66 it has a trailing grossed-up dividend yield of 4.3%. That's based on FY20's annual dividend of $0.59 per share. If the Brickworks board decide to increase each half-year payment by 1 cent per share over FY21, it would result in an annual dividend of $0.61 per share which would equate to a grossed-up dividend yield of 4.4%.
Brickworks hasn't cut its dividend in over 40 years, which is one of the longest records on the ASX. However, it hasn't increased its dividend every time since then – there were some years where the dividend was maintained.
Reason 2: Defensive and growing assets
Brickworks has two segments represented by defensive and growing assets. One part is represented by 'investments'.
The segment that's grabbing more of the headlines at the moment is its industrial property trust that it shares 50% of in a joint venture along with Goodman Group (ASX: GMG).
The Sydney site at Oakdale West is where the property trust is building a huge distribution facility for Amazon which is scheduled for completion in September 2021. Brickworks has also indicated that works are going as planned for the other large distribution warehouse that it is building for Coles Group Ltd (ASX: COL) with construction likely to commence in early 2021.
The ASX dividend share said that once these two distribution warehouses are fully done, the net rental distributions will grow by more than 25%. The gross value of the assets owned by the property trust are projected to be more than $3 billion. After that, Brickworks thinks there's still enough land for at least another five years of development.
Brickworks managing director Lindsay Partridge said: "The COVID-19 pandemic has only accelerated industry trends towards online shopping, and this is fuelling demand for the company's prime industrial property. Interest from potential new tenants is strong, with discussions well underway with several parties in relation to additional leasing opportunities within the property trust."
Reason 3: Recovering property market
Whilst Brickworks non-construction assets make up most of the underlying asset value of the business, its building products segments also influence the Brickworks share price and profit.
In a recent update to the market, management said that its Australian building products division has made a strong start to FY21. The first quarter earnings are actually well ahead of the prior corresponding period.
Its home builder customers have a good pipeline of work for the remainder of the financial year, which is being helped by the various government stimulus measures currently in place across the country. However, Western Australian trading conditions are still hard for the company.
Brickworks is investing a large sum of money into building a new brick plant. At Horsley Park, Brickworks has demolished the old brick kiln and associated equipment at the second plant, which will allow the construction of a new $125 million face brick plant. Brickworks believes this will be the most advanced brick plant ever built when completed.
However, in the North American market things aren't going to management expectations because of COVID-19 impacts. The deferral of many projects by state authorities due to financing concerns and the uncertainty relating to the US election have caused a slowdown in non-residential construction activity.
Despite that, Brickworks said that it was pleased with the underlying performance of the US business and the progress it has achieved over the past two years.
