Vistry Group (LSE:VTY) and Direct Line (LSE:DLG) are two of the best FTSE 250 dividend stocks for my portfolio, I feel. Despite a number of growth opportunities in the market, I’m currently favouring dividend-paying stocks. Passive income via dividends helps my portfolio overcome the impact of soaring inflation. Amid inflation and interest rate rises, I’m also favouring passive income stocks because these companies are promising (but not guaranteeing) the returns now, and not five years down the line. In many cases, inflation and high interest rates will also negatively impact growth stocks.
I recently bought Vistry before the ex-dividend date and I’m looking to add Direct Line to my portfolio soon.
Vistry Group
Vistry Group is down more than 25% over the past six months and 27% over the year. It’s certainly not been a good year for housebuilders’ share prices. All of them have been impacted by inflation, interest rate rises and the cladding crisis. But I think further challenges have already been factored in to the share price we see today. In addition to the attractive dividends, Vistry Group, like some other housebuilders, is starting to look cheap.
Buying in at today’s price, I can expect an annual yield of 6.6%. That’s some way above the index average. The dividend is well supported too. In 2021, the homebuilder had a dividend coverage ratio of 2.09.
The sizeable dividend comes on the back of “excellent progress” in 2021. The company reported completions rising 23.7% to 11,080. This was reflected in pre-tax profits, which rose to £319.5m, a figure far in excess of pre-pandemic profits.
Today, Vistry is trading under 900p a share, down from a year high of 1,351p. Vistry currently has a price-to-earnings ratio of 7.14, meaning it could be considered cheap. There may be some bumps over the next year if interest rates continue to rise, but I’m in this for the long run.
Direct Line
Last year, Direct Line made £343m in post-tax profits, which led it to raise its basic dividend slightly. If I buy today, I could expect a hefty 8.9% dividend yield. That’s a pretty outstanding figure and even above the most recent inflation data. Direct Line is also buying back shares. For me that represents a vote of confidence in the company’s operations.
What’s more, I think Direct Line is a solid bet for the long term. Rule changes and policy decisions could impact profitability, but that’s a type of risk that exists in all industries. On the whole, I think demand for insurance products will remain constant for a long time. Car insurance is a legal requirement and most people will continue to insure their most expensive assets, notably their homes.
There may be Fintech entries into the market that will disrupt the status quo, however. Yet Direct Line is an established brand and its little red phone logo is synonymous with the industry for many people.
Direct Line may have a higher price-to-earnings ratio than a stock like Lloyds, but it’s not expensive. The firm is trading at its cheapest price over the last five years although this reflects a slow downward trend in profits. Despite this trend, Direct Line remains very profitable and I will be looking to add this dividend big hitter to my portfolio soon.