A top FTSE 250 stock to consider buying for rapid dividend growth!

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The FTSE 100‘s renowned as being a great place to buy dividend stocks. But the FTSE 250 also has its fair share of top passive income stocks, starting with this impressive dividend growth share.

Here’s why I think investors should give it serious consideration today.

Home comforts

The pace at which residential rents are growing suggests investing in property remains a great idea. I could do this by investing in buy-to-let. This could enable me to receive a steady passive income flow through regular rent collection.

But getting exposure by purchasing shares in a property group like Grainger (LSE:GRI) could be a better idea. Doing this allows investors to avoid large initial costs. It also helps them to manage risk. This FTSE 250 share is the UK’s largest listed residential landlord, with more than 10,000 homes on its books.

Rents boom

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

This was down from annual growth of 8.9% recorded in May. But it suggests that landlords can still make a stunning return from their investments.

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

Grainger has supercharged its build-to-rent pipeline to exploit this fertile backdrop too. This stood at £1.5bn at the end of March, comprising of some 5,068 homes.

The huge supply and demand imbalance in the housing market will take years to solve. And in the meantime, property owners like Grainger look in good shape to continue raising their dividends at a rapid pace. This is illustrated in the table below.

As you can see, these predictions mean the yield on Grainger shares marches above the 3.2% average for FTSE 250 shares.

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, which is more than double the FTSE 250 average.

A reading like this could cause Grainger’s share price to slump if profit forecasts suddenly look fragile. And there are threats to the landlord’s bottom line, including potential changes to rental rules following the election.

But on balance, I think the benefits of buying this UK share could outweigh these risks. A favourable outlook for the residential rentals market today, combined with its impressive record of rent collection, suggests Grainger could be a great pick for long-term capital gains and dividend income.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK 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.