Brickworks (ASX:BKW) Is Due To Pay A Dividend Of A$0.25

Brickworks Limited (ASX:BKW) has announced that it will pay a dividend of A$0.25 per share on the 1st of May. This makes the dividend yield about the same as the industry average at 2.8%.

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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

Unless the payments are sustainable, the dividend yield doesn't mean too much. Brickworks isn't generating any profits, and it is paying out a very high proportion of the cash it is earning. This is quite a strong warning sign that the dividend may not be sustainable.

Over the next year, EPS is forecast to expand by 168.7%. Assuming the dividend continues along recent trends, we think the payout ratio could get very high, which probably can't continue without starting to put some pressure on the balance sheet.

Check out our latest analysis for Brickworks

Brickworks Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2015, 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. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.

The Dividend Has Limited Growth Potential

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, things aren't all that rosy. Brickworks' EPS has fallen by approximately 15% per year during the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

Brickworks' Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think Brickworks will make a great income stock. Although they have been consistent in the past, we think the payments are a little high to be sustained. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for Brickworks that investors should take into consideration. Is Brickworks not quite the opportunity you were looking for? Why not check out our selection of top 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.