I believe the Brickworks Limited (ASX: BKW) share price could be a great buy.
Brickworks is a construction giant
Brickworks is a pretty old company by ASX standards, it has been around for decades already. The company is the market leader of bricks in Australia with its brick brands like Austral Bricks, Bowral Bricks, Nubrik and Daniel Robertson. It also has other brands like Bristle Roofing, Austral Precast, Austral Masonry, GB Masonry, Urban Stone and Pronto Panel. Brickworks also owns a stake in Southern Cross Cement.
The company’s tagline is ‘We make beautiful stylish products that last forever’. I like that focus by Brickworks.
United States expansion
Brickworks recently expanded into the USA with three acquisitions – Glen Gery, Redland Brick and Sioux City Brick. That made the company the market leader in the north east of the country. Brickworks is currently working on efficiencies in the US to become a better business.
The Brickworks share price looks exciting to me
The share price of Brickworks is up significantly over the last six months (up 52%), though it has dropped around 5% since 9 October 2020.
Australia’s construction industry is looking forward to a resurgence in activity over the coming months as the entire country seems to be in control of COVID-19 now. There are a number of stimulus measures that will hopefully help Brickworks in the coming months. Lower taxes and particularly easier lending by banks should boost construction demand.
Brickworks owns two other important assets. It has a substantial holding of Washington H. Soul Pattison and Co. Ltd (ASX: SOL) shares and it’s an equal partner with Goodman Group
(ASX: GMG) in an industrial property trust to develop excess land that Brickworks used to own. Lindsay Partridge talks about these assets in the Australian Investors Podcast above.
The property trust is building a huge advanced distribution centre for Amazon in Sydney which is expected to materially increase the asset value and rental income of the trust. This will be very beneficial for Brickworks. The combination of the company’s share of the net rental income plus the dividends from WHSP are enough to fund Brickworks’ very reliable dividend (which hasn’t been cut for over 40 years).
The defensive assets combined with the resurgence of the construction industry makes me think that Brickworks can have a strong FY21 and beyond. It offers a fully franked dividend yield of 3.1%, which is a good starting point. But there are other ASX dividend shares I’d prefer to buy first like WHSP which I wrote about here.
