If you want to retire early, it’s vital that your money is working as hard as it can. Unfortunately, with interest rates where they are today, that isn’t possible with regular savings accounts.
So here are three of my favourite FTSE 250 dividend stocks with dividend yields of more than 8% that can help put you on the path to early retirement.
Bovis Homes (LSE: BVS) is on track to have increased EPS three-fold over the latest seven year-period if the company hits City targets for 2018. There’s no reason to suspect that it won’t. Last month the firm told investors that after a better-than-expected first half, it was on track to meet full-year expectations for growth and profit.
The current figures are calling for EPS of 95p, up 32% on last year, putting the shares on a forward P/E of 12. Compared to other housebuilders, this multiple looks a bit on the pricey side, but I believe it is worth paying a premium to buy into this growth story.
I’m even more excited about the company’s dividend potential. Analysts have the firm paying out around 102p per share for the full year, giving a dividend yield of 9%. This distribution won’t be covered entirely by EPS, but with nearly £150m of cash on the balance sheet, Bovis can afford to give a little extra to investors.
Bovis isn’t the only builder with a near-double-digit yield. Shares in the company’s peer Crest Nicholson (LSE: CRST) also yield around 9%.
In this case, the distribution looks even more secure. Based on City estimates, Crest’s dividend of 33p for 2018 will be covered twice by EPS of 65p.
The question is, if these payouts are sustainable, then why aren’t more investors buying the shares, thus driving the price up and yield down? I believe this discrepancy is due to the cautious attitude among investors towards the housing market.
Over the past 12 months, cracks have started to show in the UK property market. However, I believe even if prices decline across the UK, demand for new-builds will remain robust. Falling house prices won’t solve the UK’s housing shortage. If anything, it could make it worse as homeowners stay put.
Put simply, I believe both Crest and Bovis can maintain their current dividends for the foreseeable future.
Revenue outlook clear
Kier Group (LSE: KIE) has a more diversified business model than either of the two firms above. The construction company is active in multiple sectors, including infrastructure services and housing.
What I like about Kier is its revenue clarity. In a trading update for the financial year to the end of June, the company reported a construction and services order book of £10bn, guaranteeing approximately 90% of revenue for 2019.
Based on management’s revenue expectations, the City has Kier posting EPS of 116p for 2018, rising to around 132p for 2019. These numbers indicate the stock is trading at a forward P/E of 8 — another worrying low valuation multiple.
It seems the market has awarded Kier this valuation due to uncertainties surrounding the outlook for the construction industry. With 90% of revenue already booked for 2019, these concerns appear overblown. With a dividend yield of 7.5% on offer as well, this could be your chance to snap up the shares at a knock-down price.
Do you want to retire early and give up the rat race to enjoy the rest of your life? Of course you do, and to help you accomplish this goal, the Motley Fool has put together this free report titled "The Foolish Guide To Financial Independence", which is packed full of wealth-creating tips as well as ideas for your money.
The report is entirely free and available for download today, so if you're interested in exiting the rat race and achieving financial independence, click here to download the report. What have you got to lose?
Rupert Hargreaves owns no share 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.