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This FTSE 250 dividend stock could be a game-changer for retirement savers

In a recent article I scoured the FTSE 100 for exceptional stocks paying big dividends right now, and whose bright earnings outlooks and strong cash positions should keep yields on the correct side of ‘chunky.’

A quick glance below Britain’s premier index shows that there isn’t a lack of similar income superstars elsewhere either. Indeed, this article looks at another of the hottest FTSE 250 shares that I’m convinced can make you a fortune in retirement, construction colossus Redrow (LSE: RDW).

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Rates to remain low?

Redrow, like a great many of the housebuilders, saw its share price sink since the middle of spring. Investors have been minded to sell the stock as fears of stalling homes demand and expectations of Bank of England rate rises have increased, sending its share value 20% lower in a little under three months. This represents a terrific buying opportunity, in my opinion.

I’ve talked in depth many times before about the massive homes shortage in Britain that should keep earnings at the likes of Redrow sailing skywards, albeit at probably a slower pace than in recent years. While more rate rises from Mark Carney’s crew could well be on the cards, those predicting that the central bank’s actions may damage housing demand further down the line may well end up mistaken.

Outgoing Monetary Policy Committee member Ian McCafferty told The Guardian last week that “there is a 20-year horizon under which there will be factors keeping [interest rates] low,” adding that rates are likely to be “significantly” below the 5% average seen in the run-up to the 2007/08 financial crisis.

Profits rising

An environment of low mortgage rates, created through both dovish monetary policy by the Bank of England and intensifying competition among lenders, has already enabled sales, and thus earnings, at the likes of Redrow to continue growing despite the headwinds facing the UK economy. Predictions of more of the same should come as music to the ears of the UK’s housebuilders.

Indeed, against this backcloth the City certainly doesn’t expect profits at the FTSE 250 business to stop rising. It is expected to follow the predicted 14% profits advance in the year to June 2018 with an extra 9% rise in the current period. An added bonus is that these projections leave Redrow dealing on a dirt-cheap forward P/E ratio of 6.5 times.

Dividend dynamo

And so dividends are expected to keep rising at the building giant. Buoyed by group revenues booming 20% to a first-half record of £980m in the six months to December, Redrow decided to hike the interim dividend 50% to 9p per share. The number crunchers are predicting a full-year payout of 24p, up from the 17p dividend forked out in fiscal 2017.

City analysts are expecting further dividend growth at Redrow to 28.7p per share in the current year too, meaning investors can enjoy a giant 5.5% yield.

Given the scale of Britain’s housing shortfall, and the many years it will take for any government to get a handle on the problem, I believe earnings and thus shareholder payouts are likely to keep rising at a terrific rate. I believe that Redrow could make you a fortune by the time you come to retire.

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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.

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