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Could this FTSE 250 dividend stock be the key to retirement riches?

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The British housing market may be experiencing a little choppiness right now as escalating political and economic trouble take a bite out of homebuyer appetite, and particularly so in the capital.

Despite this, I remain bullish over the housebuilders like Telford Homes (LSE: TEF).

For one, demand for properties continues to outstrip our meagre supply, and the government’s failure to STILL get to grips with this problem should keep the shortfall alive issue so the imbalance looks set to reign for many years yet. And second, dipping buyer confidence is exacerbating the shortage right now as existing homeowners put off upgrading and elect to wait things out before putting their properties on the market.

‘Affordable’ London homes undersupplied

This is playing into the hands of the new-build market and Telford itself noted in late May that revenues hit a record £316.2m in the 12 months to March 2018, up from £291.9m a year earlier. And the result prompted pre-tax profit to sprint to £46m, up 35% year-on-year and past the construction giant’s prior expectations.

The business commented on the “robust London market for housing at our typical price point with demand from a broad base of build-to-rent investors, individual investors, owner-occupiers and housing associations.”

Telford has a massive development pipeline of 4,000 to meet the undersupplied affordable housing segment in London, but this is not the only reason to expect profits to continue swelling. The firm is also doubling down on the build-to-rent segment, which chief executive Jon Di-Stefano expects will “drive the next phase of our growth.” He thinks that the business should “consistently” deliver full-year profit before tax of above £50m looking down the line.

Earnings and dividends to keep surging?

Last year’s strong bottom-line result prompted Telford to lift the full-year dividend 8% to 17p per share. And with further excellent earnings expansion predicted for the medium term — advances of 11% and 4% are forecast for fiscal 2019 and 2020 respectively — it should come as no surprise that dividends are expected to keep rising as well.

A reward of 18.7p per share is predicted for the current period, resulting in a chunky 4.7% yield. And the readout moves to 4.8% for the year after, thanks to the anticipated 19.3p dividend.

What’s more, investors can have confidence in these City projections being fulfilled. Current dividend targets are covered 3 times by predicted earnings through to the close of next year, well above the widely-regarded security terrain of 2 times or above. This should soothe any concerns over the impact of Telford’s rising net debt pile on future payouts. Its debt jumped to £103.1m as of March from £14.3m a year earlier as the company doubled-down on its growth strategy.

As if the prospect of jumbo dividend yields wasn’t enough, the firm also sports a dirt-cheap forward P/E ratio of 7.2 times. All things considered, in my opinion Telford is too good to pass up on today, and particular at these bargain basement prices.

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Royston Wild 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.