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A 7.5% dividend yield from the FTSE 250 I’d buy for my ISA

Vistry Group (LSE: VTY) is a dirt-cheap FTSE 250 stock I’d happily buy for my ISA today. I recently commented on how FTSE 100 peer Taylor Wimpey has continued to sell houses despite the outbreak of Covid-19 and subsequent concerns over an economic meltdown emerging. Fortunately this share from Britain’s second-tier share index keeps on growing revenues, too.

Vistry said last week that it had booked 212 gross private reservations since the lockdown a month ago. This has created 132 reservations net of cancellations. The Kent company added that “our levels of website traffic and prospects remain strong, an indication of the continued underlying demand”.

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A top ISA stock

Demand for new homes remains strong because of a shortage of properties entering the market. It’s a phenomenon that could receive further support further down the line. If economic conditions worsen, existing homeowners may think twice about putting their properties on the market.

In other good news last week, Vistry announced that it was putting its people back to work on construction projects next week. It’s a development that’ll help the FTSE 250 firm get closer to its planned production target of 6,000 new homesteads each year.

Profits set to soar?

Vistry’s share price has slumped 45% since the stock market meltdown kicked off in late February. It’s a fall that came in tandem with brokers slashing their near-term earnings expectations for the housebuilder.

However, City analysts still expect the business to generate decent profits growth in 2020. It’s a reflection of that robust underlying demand caused by Britain’s whopping homes shortage. A 14% annual bottom-line rise is predicted for this year. Another 24% earnings improvement is anticipated in 2021, too.

Stack of new bank notes

7.5% dividend yields!

Of course, the UK and global economies are in uncharted waters with regards to the coronavirus crisis. Big questions over infection rates, the timing and the scale of lockdown lifting, and their subsequent implications on economic conditions and the housing market will remain in play for some time yet. And Vistry, of course should be prepared for a fresh furlough of its construction staff should, as many health experts are tipping, a secondary wave of infections emerge later this year.

I’d argue, though, that the FTSE 250 firm’s valuations more that reflect the possibility of current earnings forecasts being blown off course. At current prices it carries a forward price-to-earnings (or P/E) ratio of around 7 times. This is well inside the widely-regarded bargain watermark of 10 times and below.

Moreover, there’s plenty for income investors to toast Vistry for currently. Those recent trading problems mean that brokers expect the annual payout to drop in 2020. But the builder still carries a gigantic 5.4% yield. Besides, a return to dividend growth next year means that the yield marches up to 7.5%. This share is clearly not without risks, though at current prices it’s one I’d happily buy for my own ISA.

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Royston Wild owns shares of 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.