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ISA investors! A dirt-cheap FTSE 250 dividend AND growth stock I’d buy for 2020

The possibility of more solid dividend growth at St Modwen Properties (LSE: SMP) makes it a brilliant income buy for 2020, in my opinion. City analysts are certainly quite upbeat, predicting that a projected reward of 8.2p per share for the fiscal year just ended (to November 2019) will jump to 10.4p this year, a reading that yields an inflation-beating 2.3%.

Not the biggest reading out there, sure, but I’d say buy the property investment and regeneration business is a great income share to snap up on the promise of ripping annual dividend growth long into the future.

Profits powerhouse

Profits are flying and for fiscal 2020 a 28% bottom-line rise is anticipated, one which incidentally also provides top value — St Modwen’s forward price-to-earnings growth (PEG) reading sits below the widely-accepted bargain territory of 1 times, at 0.8 times. And fresh results released last week have underpinned my confidence in the FTSE 250 stock as one to watch in 2020 and beyond too, as they underlined the brilliant momentum across the business.

In an update for the year just passed St Modwen commented that “whilst the external environment remains uncertain and the prospects for parts of the UK property market continue to be challenging, the outlook for our two key sectors, industrial/logistics and regional housebuilding, remains underpinned by structural growth characteristics.”

Structural growth opportunities

At St Modwen Homes, its new-builds continue to attract “good demand,” it said, with sales volumes up 25%  year-on-year at 1,060 units and  its forward order book up a colossal 33%. This comes as no surprise — a mix of rock-bottom interest rates, a raft of attractive mortgage products, rising financial help  from ‘The Bank of Mum and Dad’ for first-time buyers, and support from the government’s Help  To Buy incentive programme mean that demand continues to outstrip the rate of supply.

And there’s little reason to expect this disparity to end any time soon. True, there were 241,130 net additional dwellings built between April 2018 and March 2019, up 9% on an annual basis. But this still stands some way short of the government’s target of 300,000. What’s more, signs are emerging that housebuilding has started to reverse again as Brexit-related concerns have smacked the UK’s construction sector. 

Meanwhile, St Modwen has said that it continues to build its pipeline over at the Industrial & Logistics division to capitalise on the solid opportunities here too. That committed pipeline stood at 1.6m square feet as of September, up from 1.5m square feet a year earlier, and ongoing investment here puts it in great shape to ride the fast-growing e-commerce sector.

On the back of another impressive 12 months, St Modwen’s share price has boomed 14% in the 2019 calendar year, and I fully expect another period of strong growth in 2020 as earnings expansion clocks through the gears. I’d happily buy the business for 2020, but hold it for the next decade at least.

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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.