A leading FTSE 250 stock to consider buying for fast dividend growth!

THE FTSE100is known as a great place to buy dividend stocks. But the FTSE250 also has its fair share of top passive income stocks, starting with that impressive dividend growth share.

Here’s why I think investors should think seriously about it today.

Comforts of home

The rate of growth in residential rents suggests that investing in real estate remains a great idea. I could do this by investing in buy-to-let. This could allow me to receive regular passive income through regular rental collection.

But obtain visibility by purchasing shares in a real estate group like Grainger (LSE:GRI) might be a better idea. This allows investors to avoid significant upfront costs. It also helps them manage risks. This FTSE 250 stock is the largest listed residential landlord in the UK, with more than 10,000 homes on its books.

Rent boom

As I said, rents are rising sharply in the UK. Latest research from the Office for National Statistics showed average private rents rose 8.7% year-on-year in June.

This is down from the 8.9% annual growth recorded in May. But it does suggest that homeowners can still reap an astonishing return on their investment.

Grainger’s latest financial results echoed these strong market conditions. They showed that like-for-like private rents across its portfolio rose by 8.1% in the six months to March.

Grainger has boosted its build-to-rent pipeline to also exploit this fertile context. This amounted to £1.5 billion at the end of March, comprising some 5,068 homes.

It will take years to resolve the huge imbalance between supply and demand in the real estate market. And meanwhile, landowners like Grainger appear in a good position to continue growing their dividends at a rapid pace. This is illustrated in the table below.

As you can see, these forecasts mean that the return on Grainger shares exceeds the 3.2% average for FTSE 250 shares.

The story continues

Expensive but exceptional

It’s important to note that the company looks expensive from an earnings perspective. Today, it trades on a forward price-to-earnings (P/E) ratio of 26.3 times, more than double the FTSE 250 average.

Such a reading could cause Grainger’s share price to fall if earnings forecasts suddenly appear shaky. And there are threats to landlords’ bottom lines, including potential changes to rental rules after the election.

But overall, I think the benefits of buying these UK stocks could outweigh these risks. The favorable outlook for the residential rental market today, combined with its impressive rental collection history, suggests that Grainger could be an excellent choice for long-term capital gains and dividend income.

The article One of the Best FTSE 250 Stocks to Consider Buying for Fast Dividend Growth! appeared first on The Motley Fool UK.

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Royston Wild has no position in any of the stocks mentioned. The Motley Fool UK has no position in any of the stocks mentioned. The opinions expressed about companies mentioned in this article are those of the author and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that considering a broad range of information makes us better investors.

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