Should I buy this dividend stock with its 7%+ yield?

Jabran Khan takes a closer look at this potential dividend stock with its enticing yield to see if he could boost his passive income.

| 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.

estate agent welcoming a couple to house viewing

Image source: Getty Images

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.

One dividend stock I’m considering adding to my holdings is Vistry Group (LSE:VTY). Could it help me boost my passive income stream through dividend payments? After all, this is a large part of my investment strategy. Let’s take a closer look to see if I should buy or avoid the shares.

Housebuilder

The name Vistry Group may not resonate as strongly as other housebuilders due to the fact the business was only formed under this name in 2020. It was created through the acquisition completed by Bovis Homes of Linden Homes. With over 13 regional business units, the firm has approximately 200 sites currently across the UK. It is one of the largest housebuilders in the UK.

So what’s happening with Vistry shares currently? Well, as I write, they’re trading for 792p. At this time last year, the stock was trading for 1,104p, which is a 28% decline over a 12-month period.

A dividend stock with risks

Firstly, the current economic climate could affect Vistry negatively. Soaring inflation, the rising cost of materials, as well as the supply chain crisis, won’t help. For example, rising costs could put pressure on profit margins. Next, supply chain issues could result in building and sales being delayed. All these issues could affect performance and returns.

Next, rising interest rates, to combat inflation, have made it harder for consumers to obtain a mortgage. This could result in a shorter-term decline in demand for properties as many may turn to the rental market instead. The current cost-of-living crisis could add to this too.

The bull case and my verdict

So to the bull case. Firstly, I’m buoyed by Vistry’s position in the market, as well as its profile and presence. In fact, in 2021, it was voted the largest housebuilder in the UK at the Housebuilder Awards. I believe it could leverage this size advantage into increased sales, performance, and eventually returns too.

Next, the housing market in the UK could benefit Vistry, and all other housebuilders, in the longer term. At present, demand for new homes is outstripping supply. This means new homes could be snapped up quickly, which could result in performance growth for Vistry, and dividends for shareholders.

For any dividend stock I want to know the level of return and I measure this by the dividend yield. Currently, this stands at 7.5%. This is significantly higher than the FTSE 250 average of 1.9%. I am conscious that dividends are never guaranteed, however. Furthermore, the shares look decent value for money right now on a price-to-earnings ratio of eight.

Finally, I can see that Vistry has a good track record of performance. I am aware that past performance is no guarantee of the future. However, looking back, I can see it has grown revenue and profit year on year since 2018.

To summarise, I expect Vistry shares to experience some headwinds in the short to medium term. Luckily, I invest for the long term. With that in mind, I believe Vistry could be a good dividend stock to buy for my holdings. Its profile, presence, passive income opportunity, as well as performance track record and current market conditions, help my investment case.

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.

Jabran Khan has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »