The ASX dividend stock Brickworks Ltd (ASX: BKW) has suffered a decline of around 20% in less than 12 months. This makes its valuation one of the most attractive S&P/ASX 200 Index (ASX: XJO) shares to buy now, in my opinion.
Many investors may think of Brickworks as simply a leading building products business. It's true that it is a major player in the Australian building products space, with a good presence in bricks, pavers, stone, masonry and roofing. It also has a presence in cement, timber battens and 'specialised building systems'.
When economic times are good for construction, the building products segment can certainly deliver good profit. However, the business is currently experiencing weaker conditions, with subdued demand expected to persist for the next 12 months.
That explains why the Brickworks share price has fallen so much since March 2024. However, conditions are forecast to "improve significantly", according to the company. And following re-structuring, portfolio rationalisation and plant investments, it's "well-placed to deliver strong returns when market conditions improve".
Brickworks also noted that industry rationalisation within Australian roof tiles had improved the prospects of Bristle Roofing.
Having said that, there are other reasons to like the ASX dividend stock.
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Solid starting dividend yield
There's no 'right' dividend yield that an ASX dividend share should have for it to be appealing. But I'll say that the Brickworks payout is high enough to attract me.
In the 2024 financial year, Brickworks paid an annual dividend per share of 67 cents per share, a 3.1% increase from the 2023 financial year.
At the current Brickworks share price of $25.15, the FY24 dividend translates into a dividend yield of close to 4%, including franking credits.
That's just the first year, of course. A benefit of ASX dividend stocks is that they can (but are not guaranteed to) grow their dividends for investors each year.
Great dividend record
If I'm focusing on receiving passive income, I want there to be a high chance that the dividends will keep flowing, whether economic conditions are good or not.
It can be difficult for a business to continue growing its dividend over time because recessions do happen. The COVID-19 pandemic caused a number of leading ASX dividend shares to cut their dividends. That included the Commonwealth Bank of Australia (ASX: CBA) and Macquarie Group Ltd (ASX: MQG). But not Brickworks.
In the Brickworks annual general meeting (AGM) presentation, the company said:
We believe in providing returns through dividends and are proud of our long history of dividend growth, and the stability this provides to our shareholders.
It has maintained or grown its annual dividend in each of the last 48 years and has grown its dividend for 11 years in a row.
Cheap, quality assets
The business has two asset groups that pay for its stable and growing dividend.
It has owned its substantial stake in Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) for decades, which has helped provide stability and cash flow for Brickworks.
Brickworks also owns half of an industrial property trust along Goodman Group (ASX: GMG). It has large warehouses that are leased to quality tenants and it's benefiting from strong demand for industrial property space for e-commerce, logistics and data centres. The property trust also has a pipeline of projects to grow the portfolio further and unlock further rental profits.
On 31 July 2024, the ASX dividend stock had an underlying asset value of $35.79 per share, and Brickworks shares are trading at a discount of close to 30% to this. That's a really attractive price, in my mind.
