Brickworks Limited (ASX: BKW) looks like a really good ASX dividend share idea to me.
The building products business ticks all of the boxes when it comes to factors that I’m looking for income:
Decent starting yield
An ASX dividend share can only really be considered decent for income if it has a solid starting yield.
I think that’s the case here – despite the recent share price increase, Brickworks currently offers a fully franked dividend yield of 2.5%.
It’s not the biggest yield ever, but I think that is a good starting point.
Reliable in a crisis
Brickworks’ dividend record is very impressive. It hasn’t reduced its dividend in over 40 years. However, that has only been possible thanks to the underlying earnings.
Brickworks’ building product businesses are quality but a bit volatile.
It’s the other assets that has helped Brickworks keep paying a dividend through bad times.
I’m talking about the shareholding of Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) which provides defensive and growing earnings & dividends. The 50% stake of the industrial property trust is also seeing rising rental profit and a growing capital value.
Dividend growth
Brickworks has been increasing its dividend for several years in a row, including through the GFC.
The growth of WHSP’s dividend and the industrial property trust’s rental profit (and distribution) is what funds the Brickworks dividend and sends it higher and higher.
In the FY21 half-year result, Brickworks increased its dividend per share by 5%.
I believe that the Brickworks dividend can continue to grow at a solid rate for many years to come, particularly if the rental profit of the trust keeps going up.
Good value
I’d only want to buy shares of a business if it’s good value. It has to be more than just a dividend-paying company.
In my opinion, Brickworks is good value – even after the recent strength of the business (up 16% over the last month).
When Brickworks released its HY21 result, it disclosed that it had an inferred asset backing of around $4.1 billion, or $27.23 per share. Since then, Brickworks has seen continued strength of the construction markets in Australia and the US, as well as a $100 million revaluation increase with the property trust because of strong valuations for other industrial properties in western Sydney.
The Brickworks share price is at a double digit discount to the old underlying value, and that value has since increased further.
