One potentially overlooked dividend stock I’m looking to buy when I next can is Brickability Group (LSE: BRCK).
Here’s why the stock caught my eye, and my investment case explained!
Bricks, mortar, and much more
Brickability Group distributes external and internal building solutions to private and commercial contractors. It also offers installation services too. The firm operates in three main segments, which are bricks and building materials, roofing services and heating, and plumbing and joinery.
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The shares have been under pressure in the past 12 months. They’re down 2% over this period/ from 67p at this time last year to current levels of 65p.
The bull case
Let’s be honest, the building trade perhaps isn’t the most exciting sector, compared to say a cutting edge tech stock. However, it still plays a vital role in day to day lives and the infrastructure of our society.
I’m buoyed by Brickability’s diversification to start with, as it covers all major aspects of building internally and externally. This could help grow performance and returns.
Moving on, the business has a good track record of performance. Although I’m aware past performance is not a guarantee of the future, it’s hard to ignore in this case. Revenue has grown from £163.3m in 2019, to £681.1m in 2023. Furthermore, profits have risen nicely in the same time period from £6.5m, to £27.7m.
From a growth perspective, the housing imbalance, and ageing existing infrastructure in the UK could offer the firm potentially lucrative times ahead. All facets of building materials will be needed to plug this gap and bring housing and other infrastructure into the modern age.
Next, the shares look good value for money on a price-to-earnings ratio of just over six. Furthermore, a forward dividend yield of over 5% is attractive. In fact, this is higher than the FTSE 100 average of 3.9%. However, I’m conscious that dividends are never guaranteed.
Finally, a trading update released on 27 February for the year ending 31 March spoke of resilience and an eye on potentially fruitful growth opportunities once inflation comes down and rates are cut.
Risks and final thoughts
The obvious issue right now is the fact that demand for bricks, its biggest money-spinner, is down due to economic issues and a weaker housebuilding market. If this continues to persist, then performance and returns could be dented.
In addition to this, political issues, such as it being election year, could be a major blocker as to the rate of new house building and addressing the housing imbalance in the UK. This potential delay could hurt Brickability’s performance levels, as well as level of return.
Overall, there’s a lot to like about Brickability for me. A passive income opportunity and enticing valuation, as well as good future growth prospects and diversification help my investment case.
If the business can perform in a similar vein to the past few years, I don’t see it being a small-cap stock for too much longer!
