Image source: Getty Images
of FTSE 100 And other indicators have been pushing lower in the past two weeks. Indeed, UK stocks tanked on Friday after the new chancellor’s first small budget. And all this served to increase production. One stock that has struggled in recent months is the homebuilding giant. Persimmon (LSE:PSN)
Persimmons had the highest yield on the FTSE 100, but yields exploded as the stock fell 38% over the past six months, and now stands at 17.5%.
So, let’s take a closer look at this huge buy and sell deal and see if it might be right for my portfolio.
Great product, can you trust it?
Dividend yields are related to the company’s stock price and show the percentage of the stock price that will be paid each year in dividends.
After a particularly good year, some companies will pay out large dividends to their shareholders, but in the long run the payout will return to normal. Sometimes the yield can be artificially high as the stock price reflects investors’ concerns.
The problem is that while giant products may look attractive, they are usually not sustainable.
Persimmon paid 235p per share in 2022 and is expected to pay 225p in 2023. At the current share price, Persimmon has a 17.5% yield in 2022 and a 17% yield in 2023.
In the year In 2021, the dividend payout ratio — the number of times a company uses its net income to pay dividends to its shareholders — was 1.06. That is not very strong. This meant that Persimmon had just enough income to cover dividend payments.
Business performance in 2022 will be slightly higher than in 2021, this year the coverage may be lower again. As such, there may be reason for more downward pressure on the distributor.
Hopes will improve
Homebuilders are having some trouble right now, and that explains why Persimmon’s stock price is trading at its lowest level in nine years. Rising interest rates may cause buyers to delay their purchasing decisions. In response, house prices are expected to stagnate, with inflation hovering around 5%. Collectively, these factors could depress margins next year.
However, we have seen stamp duty cut and in the medium term, I am confident that demand for new homes will pick up again. After all, the UK has a huge housing shortage.
And Persimmon is one of only two housebuilder stocks in the UK – the other being. The vestry. The reason is that Persimmon is less influenced by fire safety commitments than other homebuilders. Persimmon puts spending on rebuilding homes up 10% at £75m by 2021. Some home builders lose a year’s profit.
So with Persimmon trading around £13.50, down 50% in the last 12 months, I think this housebuilder has fallen enough. I own this stock, but would like to buy more at the current price.
In the long run, I’m sure expectations will rise. But, in the meantime, I’m happy to take modest dividends. Even if the fee were halved, the result would still be double the index average.