A cheap FTSE 250 dividend growth stock that I’d buy and never sell

Royston Wild looks at a FTSE 250 (INDEXFTSE: MCX) dividend share that could keep on delivering brilliant dividend growth.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Frequent readers of my articles will know my bullish view on the British housing market. Those looking to tap into this sector have plenty of companies across the FTSE 100 and FTSE 250 to pick from, and this article looks at one of the big yielders on one of London’s second-tier index which I’ve long been a champion of, Redrow (LSE: RDW).

Homebuyer demand may not be as robust nowadays as political and economic uncertainty in the country reigns, and this is reflected in City estimates that Redrow will post 3% earnings growth in the year to June 2019 versus the double-digit-percentage increases it has been accustomed to generating up until now.

Still, estimates of extra profits growth still supports predictions that dividends should keep perching at generous levels, the number crunchers forecasting a full-year payout of 28.7p per share. This means the yield stands at a delicious 4.8%.

Record profits

There’s certainly no reason to expect profits or dividend growth to grind to a halt, and certainly so in the wake of Redrow’s full-year results of last week. It advised that revenues boomed 16% to £1.92bn last year, thanks to a higher number of completions and improved selling prices, an achievement that also pushed pre-tax profit to a record peak of £380m, up 21% year-on-year.

The result prompted Redrow to lift the total dividend to 28p last week, up a mammoth 65% from the prior 12-month period. And it’s no surprise the FTSE 250 firm had the confidence to give the shareholder payments a shot in the arm — its order book stood at an all-time high of £1.14m as of June, up £110m from the corresponding point in 2017.

Chairman Steve Morgan commented that “despite the uncertainty surrounding Brexit, demand for new homes continues to be robust, and overall house price inflation has moderated to a sustainable 2%.” He added that “mortgage availability is excellent, and with low interest rates by historic levels, the mortgage market remains very competitive.” He also lauded the positive impact of the government’s Help To Buy purchase scheme that helps first-time buyers get onto the property ladder.

Although Redrow has called for more clarity on Help To Buy, its commitment to boosting build rates suggests that it expects trading conditions to remain favourable for the industry for some time yet. The business added another 7,455 plots to its land bank in fiscal 2018, and last week affirmed that it is “committed to growing our output to help the country’s requirement to increase the number of new homes built.”

Redrow clearly isn’t without its share of risk. But I reckon that its rock-bottom valuation, a forward P/E ratio of 6.8 times, more than prices-in the current uncertainty surrounding the future of Help To Buy. In fact, I think the construction colossus is a brilliant share to buy today given the prospect of sustained earnings, and thus dividend, growth.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Redrow. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

After it crashed 25%, should I buy this former stock market darling in my Stocks and Shares ISA?

Harvey Jones has a big hole in his Stocks and Shares ISA that he is keen to fill. Should he…

Read more »

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

How’s the dividend forecast looking for Legal & General shares in 2025 and beyond?

As a shareholder, I like to keep track of the potential dividend returns I could make from my Legal &…

Read more »

artificial intelligence investing algorithms
Investing Articles

Could buying this stock with a $7bn market cap be like investing in Nvidia in 2010?

Where might the next Nvidia-type stock be lurking in today's market? Our writer takes a look at one candidate with…

Read more »

Investing Articles

Is GSK a bargain now the share price is near 1,333p?

Biopharma company GSK looks like a decent stock to consider for the long term, so is today's lower share price…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could December be a great month to buy UK shares?

Christopher Ruane sees some possible reasons to look for shares to buy in December -- but he'll be using the…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Sticking to FTSE shares, I’d still aim for a £1,000 monthly passive income like this!

By investing in blue-chip FTSE shares with proven business models, our writer hopes he can build sizeable passive income streams…

Read more »

Growth Shares

BT shares? I think there are much better UK stocks for the long term

Over the long term, many UK stocks have performed much better than BT. Here’s a look at two companies that…

Read more »

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »