I’m looking at a dividend growth share I’d buy to hold for the next 10 years. Here’s why I’d buy it with the last £5,000 in my share-dealing account.
Another top property stock
I bought Barratt Development and Taylor Wimpey shares to capitalise on soaring demand for newbuild properties. And I’m considering snapping up Grainger (LSE: GRI) shares to make money from the white-hot residential rentals market.
Average rents in Britain continue to soar as the country’s acute shortage of rented properties worsens. Rightmove now says that the average rent outside London has leapt to £1,088 a month. This is up 10.8% year-on-year and is the first annual jump above 10% on record.
It’s the country’s largest landlord in the private rental sector and is thriving in this landscape. Rental growth accelerated to 3.2% on a like-for-like basis in the four months to January. And occupancy of 97% in the period beat even its own expectations.
Expanding for growth
Grainger has plans to expand rapidly to exploit this fertile environment too. This year alone it plans to open four new assets comprising a total of 1,174 rental units.
My main concern for it are changes to rental regulations that could drive up costs. But all things considered I think the benefits of owning this UK share outweigh the risks.
Besides, in the current environment of high inflation I think it’s a particularly shrewd buy. This is because the rents property companies ask for tend to rise in line with broader inflation. As an investor, this provides me with much-needed protection from rampant inflation that threatens to worsen considerably.
Spectacular dividend growth
I also like it because of the possibility of rapid dividend growth. City analysts think the full-year payout for this year (to September) will leap 8.2% to 5.57p per share, from 5.15p last time out.
The number crunchers think the total dividend will rise to 6.25p per share in financial 2023 as well. This would represent a 12.2% year-on-year increase.
Annual rises vs yield
Now, yields at Grainger aren’t the biggest. For fiscal 2022 and 2023, these sit at 1.8% and 2.1% respectively. They sit below the broader forward average of 3.5% for UK shares.
Still, the prospect of strong and sustained dividend growth long into the future still makes Grainger one of the best dividend stocks to own, in my opinion. I don’t expect Britain’s shortage of rental properties to be solved any time soon.
Researchers at Capital Economics suggest the UK needs to create 227,000 rental homes a year to meet soaring demand. It’s a figure which looks quite impossible, in my opinion. So I expect profits and dividends to continue rising strongly at Grainger for a long time.