Special Dividends possible from our 2 best construction materials stocks....ABC and Brickworks

It seems the momentum in new housing starts and infrastructure build will support the construction materials sector for the foreseeable future. However, that does not mean we advocate paying PE premiums to buy into the sector, as ultimately it is cyclical. We prefer stocks with strong geographic, product and customer sector diversity, and operational control of assets (owned/invested). Overall upstream positioning in the construction value chain, low debt balance sheet and a high dividends outlook is also important. ABC and BKW stand out as the best through-cycle stocks. ABC is the ideal all rounder in the ROFE vs PE chart below, and looks well placed to pay special dividends given the low probability in the medium term of any major acquisitions. BKW also has capacity to pay a special dividend (we estimate it could pay up to 25cps fully franked special in the coming months) using 2/3rds of the estimated $53m net cash proceeds from the Coles CDC JV asset sale (resulting in near 10% gearing at BKW level).