Investing

9.5% dividend yield! Here’s a FTSE 250 dividend stock I might buy

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Soaring inflation and the cost-of-living crisis are big threats to UK shares as 2022 progresses. It’s something I need to consider carefully as I search for FTSE 250 dividend stocks to buy.

But, so far, the UK housebuilding sector remains pretty resilient. A sharp slowdown in property prices is yet to transpire despite such warnings since the back end of 2021. So, right now, I’m tempted to buy shares in Vistry Group (LSE: VTY).

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Encouraging government data on Wednesday has reinforced my appetite for housebuilders like this. This showed average house prices rose an extra 1.1% between March and April. This also resulted in annual house price growth of 12.4% in April.

More good news

In another positive omen, FTSE 100 builder The Berkeley Group released another set of positive trading numbers midweek. The company saw annual pre-tax profits rise 6.4% in the financial year to April.

Meanwhile, the value of underlying sales reservations was up a whopping 25% year-on-year and “slightly ahead” of the two years before the pandemic.

Businesses like Vistry (formerly known as Bovis Homes) are having to endure rising construction costs. But property price growth continues to outpace increasing building product costs by a fair margin. As a consequence, these firms continue to make decent profits.

Reflecting this point, City analysts think Vistry will report a 13% annual earnings increase in 2022.

A rock-bottom P/E ratio

Of course, profits estimates can be downgraded according to company-specific and external factors. But Vistry’s low valuation provides a margin of error for me to enjoy.

At 822p per share, the builder commands a price-to-earnings (P/E) ratio of 5.8 times. This is comfortably inside the value watermark of 10 times and below.

9.5% dividend yields

I mostly like Vistry though because of its exceptional dividend prospects. The business is expected to lift the full-year dividend from 60p per share in 2021 to 73.2p this year.

Consequently, the dividend yield clocks in at a mighty 8.9%. And things get better for 2023 too. A 78.3p per share dividend is predicted for then, driving the yield to 9.5%.

A top FTSE 250 dividend stock

I need to be careful about buying big-dividend shares today. Deteriorating economic conditions mean many UK shares won’t generate enough profits to pay the dividends, some City analysts expect.

However, I think the chances of Vistry meeting current dividend projections are high. Anticipated payouts over the next couple of years are covered 1.9 times by expected earnings. A reading of 2 times and above is considered as good protection for investors.

Vistry also has lots of cash on its balance sheet that it can use to pay big dividends if profits disappoint. Indeed, its share buyback plan launched earlier this month illustrates the excellent liquidity it currently enjoys. I think Vistry’s an excellent income stock for me to buy during this bear market.


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