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A cheap dividend growth stock I’d buy for my ISA before February!

I own shares in Barratt and Taylor Wimpey and believe that buying shares in Bellway (LSE: BWY) is also a great idea. Fresh trading numbers are to be released on Friday, February 7 and judging from the slew of positive updates from across the sector of late, I reckon its share price could gain serious ground.

Not that the FTSE 250 firm has been struggling on that front of late. Bellway has soared 36% in value over the past six months and just hit fresh record highs above £40 per share. But the company is still dirt-cheap despite these rises, the business trading on a forward P/E ratio of just 10 times. Its 3.8% corresponding dividend yield also dices the UK mid-cap average of 3.3%.

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Another strong survey

This is a ridiculously low valuation, in my opinion. You’d think these cyclical firms would be loaded with short-to-medium-term risk as Brexit uncertainty constrains economic growth. Yet the scale of the UK’s homes shortage means that demand for newbuild properties continues to rip higher.

And this was evident in Bellway’s latest update of mid October. Back then, it advised that revenues rose almost 9% in the 12 months to July 2019, driven by record completions, which stood at 10,892 homes (up 6% year on year), and solid home price growth (up 3% to £291,968).

The strength of first-time buyer demand continues to drive demand for Bellway and its rivals’ product. And latest English Housing Survey illustrates this point perfectly. This showed the number of 25-34-year-olds who own their own home in England rose to 41% in 2018-2019, putting to an end a decade of annual decline.

Good news!

Macroeconomic and political uncertainty may be a drag on the broader housing market, but lending conditions for first-time buyers have never been better.

Rock-bottom interest rates have created a broad swathe of attractive mortgage products, and intense competition lending among lenders have brought the cost of borrowing down further. The Help to Buy purchase incentive provides an added sweetener for those looking to buy their first home too. Financial assistance from ‘The Bank of Mum and Dad’ is also going from strength to strength, allowing those first-time buyers to raise sizeable deposits.

Newsflow for the housebuilders is also getting more and more encouraging. The Conservatives’ emphatic victory at last month’s general election has already released plenty of pent-up demand from property buyers and could continue to do so. And recent inflation data suggests that the Bank of England will have plenty of breathing space to cut interest rates again.

Right now, City analysts expect Bellway’s earnings to slip 7% year on year in the fiscal period to July 2020. This looks overly pessimistic, in my opinion. I fully expect some significant forecast upgrades once those fresh trading numbers come out next month.

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Royston Wild owns shares of Barratt Developments and Taylor Wimpey. 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.