This FTSE 250 dividend stock is too cheap! I’d buy it in an ISA today

Looking to go bargain hunting on the FTSE 250? Royston Wild picks out one top dividend hero which takes pride of place in his own ISA.

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The coronavirus crisis has delivered a hammerblow to the FTSE 250. Despite the recent recovery it still trades at a 25% discount to levels recorded on 24 February. There are some top-quality stocks that have fared even worse than the wider index, though.

Take Ibstock (LSE: IBST). The brickbuilder more than halved in value as Covid-19 fears intensified at one point, though it has grabbed back some of that ground since. Still, I would argue that it remains too cheap to miss. Not only does it trade on a rock-bottom forward price-to-earnings (P/E) ratio of 14.6 times, the company also sports a chunky 4.2% dividend yield for 2020.

Home orders rising

The construction materials colossus has seen its share price leap in recent days as a number of housebuilders like Taylor Wimpey, Persimmon, and that other FTSE 250 giant Vistry, have vowed to return to work during the next fortnight. This isn’t the only reason why Ibstock shares have rocketed of late, though (it’s gained a third in value since the beginning of April).

Naturally market makers had feared a collapse in the UK housing market following the Covid-19 breakout. However, concerns over the domestic economy have so far failed to smash buyer interest for newbuild homes. Taylor Wimpey advised last week that “we are still seeing continued demand for our homes and our sales teams have been selling homes remotely, and digitally, week to week.”

Indeed, the FTSE 100 builder’s order book continues to increase despite the ongoing pandemic. This had grown to roughly £2.68bn as of 19 April from £2.4bn at the same point in 2019. Cancellations have remained low, too, Taylor Wimpey says, at just 1% of the order book.

A FTSE 250 star

It’s clear that the housebuilders and providers of construction materials like bricks will suffer some profits strain in the near term. The lockdown of building sites has of course smashed planned build rates for 2020. The homemakers could well suffer from a fall in buyer demand from later in the year should the broader economy disappear down the sinkhole.

The long-term outlook for all of these firms remains very strong, however. There simply aren’t enough homes to go around and government will need to get building to meet the needs of a booming population. The powers-that-be have planned to create 300,000 new homes each year by the middle of this new decade, of course.

Ibstock, then, can expect sales of its bricks to keep on flying, then. The Leicestershire company shuttered its manufacturing sites in response to the pandemic. But profits were flying up to that point. A 5% revenues uplift in 2019 pushed adjusted EBITDA 9% higher on an annual basis.

And the future looks extremely bright. As well as boosting its position in the concrete market with the purchase of Longley last summer, a new brick factory will turbocharge production of its bread-and-butter products from 2022. I own shares in this particular FTSE 250 company and am tempted to buy more given its current cheapness.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild owns shares of Ibstock and Taylor Wimpey. The Motley Fool UK has recommended Ibstock. 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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