Brickworks (ASX:BKW) Has Announced That It Will Be Increasing Its Dividend To A$0.43

Brickworks Limited (ASX:BKW) has announced that it will be increasing its dividend from last year's comparable payment on the 27th of November to A$0.43. This makes the dividend yield about the same as the industry average at 2.3%.

See our latest analysis for Brickworks

Brickworks' Projections Indicate Future Payments May Be Unsustainable

Estimates Indicate Brickworks' Could Struggle to Maintain Dividend Payments In The Future

Brickworks' Future Dividends May Potentially Be At Risk

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Brickworks isn't generating any profits, and it is paying out a very high proportion of the cash it is earning. These payout levels would generally be quite difficult to keep up.

Earnings per share is forecast to rise by 177.3% over the next year. If the dividend continues on its recent course, the payout ratio in 12 months could be 118%, which is a bit high and could start applying pressure to the balance sheet.

Brickworks Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2014, the annual payment back then was A$0.42, compared to the most recent full-year payment of A$0.67. This works out to be a compound annual growth rate (CAGR) of approximately 4.8% a year over that time. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

Dividend Growth May Be Hard To Achieve

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, initial appearances might be deceiving. Over the past five years, it looks as though Brickworks' EPS has declined at around 2.4% a year. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think Brickworks' payments are rock solid. Although they have been consistent in the past, we think the payments are a little high to be sustained. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Given that earnings are not growing, the dividend does not look nearly so attractive. Very few businesses see earnings consistently shrink year after year in perpetuity though, and so it might be worth seeing what the 9 analysts we track are forecasting for the future. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.