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Here’s why I’d buy this dirt-cheap FTSE 250 stock for dividends and growth!

Happy young plus size woman sitting at kitchen table and watching tv series on tablet computer

I believe FTSE 250 incumbent Bellway (LSE:BWY) can boost my passive income stream through dividend payments. Furthermore, I believe it has excellent growth prospects ahead too. Here’s why I’d buy the shares for my holdings.

House builder

As a quick reminder, Bellway is one of the largest house builders in the UK, with roots stretching back over 70 years. It builds a range of apartments, penthouses, and family homes throughout the UK. Interestingly for me, it targets brownfield land, which are areas specifically ear-marked for urban renewal by the government.

So what’s happening with Bellway shares currently? Well, as I write, they’re trading for 2,275p. At this time last year, the stock was trading for 3,220p, which is a 29% drop over a 12-month period.

I am not worried by Bellway’s share price drop. In fact, I see it as an opportunity to pick up cheaper shares in a quality business operating in a burgeoning market.

FTSE 250 stocks have risks

Recent macroeconomic headwinds have put real pressure on house builders and Bellway is no different. Firstly, soaring inflation and the rising cost of raw materials, crucial to building homes, have put pressure on profit margins. With costs rising and profits under pressure, performance and shareholder returns could be squeezed. Passing these costs on to customers may result in a loss of custom to competitors. Furthermore, the supply chain crisis could have a material impact on operations too.

Next, the house building sector in the UK is saturated and competitive. All businesses in this space, including Bellway, are vying for market dominance and looking to offer value for money, quality homes, and a unique selling point to their customers. A loss of customers to other competitors, such as FTSE 100 incumbent Persimmon, could affect performance and shareholder returns.

Why I’d buy Bellway shares

So to the positives then. Firstly, the house building market is a burgeoning growth market here in the UK. It is a well-known fact that the demand for homes is massively outstripping supply. Bellway could continue growing its business, as well as performance if it can continue building and selling quality homes to meet this demand.

Next, Bellway shares could boost my passive income stream through dividend payments. The shares currently offer a dividend yield of close to 6%. It is worth remembering the FTSE 250 average is just under 2%. I am aware that dividends can be cancelled at the discretion of the business at any time, however. Furthermore, the shares look dirt-cheap to me on a price-to-earnings ratio of just six.

Finally, dividend payments and growth initiatives are underpinned by performance. Although I am aware that past performance is not a guarantee of the future, I am buoyed by Bellway’s track record. Looking back, it grew revenue and profit for a few years before the pandemic struck. Since that time, it has bounced back to surpass pre-pandemic trading too. I expect this upward momentum to continue despite the challenges noted above.

I believe Bellway shares are an excellent way to boost my passive income stream and to continue doing so based on the current housing shortage in the UK. This growth could underpin performance and dividends for years to come.

The post Here’s why I’d buy this dirt-cheap FTSE 250 stock for dividends and growth! appeared first on The Motley Fool UK.

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Jabran Khan 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.