For companies other than those operating in the oil industry, sentiment has been extremely low in recent months. For example, the FTSE 350, which combines both the FTSE 100 and the FTSE 250, has dipped around 7% year-to-date and over 1% in the past year. But although my portfolio has felt the pain of this bear market, I’m continuing to buy stocks. I’m particularly favourable to dividend stocks right now, as they offer a strong source of passive income. With a healthy dividend yield, Vistry (LSE: VTY) is one of my personal favourites.
What does the company do?
Vistry is a housebuilder that was formed in 2019 from a merger between Bovis Homes and Galliford Try. As a builder, it has faced a turbulent past couple of years. Indeed, near the start of the pandemic, the company struggled with the Covid restrictions, as this caused sites to be shut down and estate agents to be closed. However, the firm has undergone a remarkable recovery since, driven by rising house prices.
Indeed, in 2021, the group managed to report adjusted full-year profits before tax of £346m, up from £143.9 the year before. This was the result of rising house prices and an increase in house completions to over 6,500 from previous year figures of just 4,650.
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The group also noted strong demand during the first half of 2022, which should allow it to deliver full-year profits of around £415m. This demonstrates that the company is continuing to grow, despite the macroeconomic uncertainties.
Reputation as a dividend stock
Vistry’s excellent profits over the past year have allowed it to deliver excellent shareholder returns. For 2021, the company announced dividends equating to 60p per share. At the current Vistry share price, this equates to a yield of 7%. In comparison to other UK dividend stocks, this is very high. It has also implemented a share buyback programme of £35m.
The dividend seems extremely sustainable as it’s covered twice by profits. This means that the firm has plenty of cash left over to reinvest, which can fuel further growth. With profits expected to rise this year, it also means that a dividend increase could be forthcoming.
However, such a dividend rise isn’t guaranteed. For instance, due to rising inflation and interest rates, many believe that house prices are in line for a correction. Such a result would likely hurt Vistry’s future profits and restrict its ability to raise the dividend further. There’s even the potential that this could lead to a dividend cut, although this seems unlikely considering its current sustainability.
What am I doing?
Initially, I bought Vistry shares during the stock market crash of 2020. But after falling 30% in the last year, I believe that now is a great time for me to add more of this dividend stock to my portfolio. It currently trades at a price-to-earnings ratio of around 7 and at a 20% discount to its net asset value. This suggests to me that the recent sell-off has been overdone.
