How wrong am I about Persimmon shares? They keep colliding!

Middle-aged white man pulling a frustrated face while looking at a screen

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Earlier this summer, my husband and I built a new independent portfolio of low-cost stocks. We bought a total of 10 new shares. These include six blue-chips FTSE 100 shares and three mid-cap FTSE 250 shares, plus one US share. We built this portfolio to generate additional passive income, so all 10 stocks offer attractive dividends. But a large investment of money – Persimmon (LSE: PSN ) shares – worst performer so far. So what went wrong?

Was it a mistake to buy Persimmon shares?

As I write on Monday morning, Persimmon shares are trading at 1,427p, down 1% since entering on Friday. Here’s how they did it over six times:

five days -4.4%
One month -22.9%
Six months -38.2%
In the year In 2022 -50.1%
one year -50.4%
five years -43.8%

Persimmon’s share price has had a torrid period since April 2021, falling by more than half this calendar year and over the past 12 months. At their 52-week high, the shares rose to 2,930p on January 4, making them one of the FTSE 100’s best performers in 2022.

For the record, my wife bought these declining shares at the end of July at full price (including stamp duty and trading commission) of £18.56. After six weeks, they lost a quarter of their value (-23.2%). oh

Remind me why I bought this crappy stock.

We decided to buy Persimmon shares for three main reasons. Firstly, exposure to the UK property market – with a market capitalization of £4.6 billion, the group is the UK’s second largest housebuilder. Second, because the shares looked cheap at the time, with a low price-to-earnings ratio (P/E). Third, this stock delivered the highest dividend yield in the FTSE 100 when we bought it – and still does.

Unfortunately, things have gone from bad to worse for the UK economy this summer. Energy costs — especially wholesale gas prices — have skyrocketed, pushing up already red-hot inflation. With rising consumer prices and interest rates, there is growing concern that our economy could be headed for recession. This could drag down home prices and transaction levels, creating a double whammy for Persimmon and its shares.

This stock seems dirt-cheap to me for a long time

After falling from their recent highs, Persimmon shares have been dumped in Mr. Market’s bargain bin. Now, at a P/E of 6.2, they trade for an earnings yield of 16.1%. What’s more, their dividend yield has risen to 16.5% year-on-year – unheard of territory for a FTSE 100 stock.

But the company’s dividends are not guaranteed, so they can be cut or canceled at any time. And in the year I think the fear of a possible decline in persimmons in 2022-23 has added to the selling pressure on this stock. After all, double-digit cash flows are rare in the FTSE 100. But even if Persimmon cuts this fee in half, it’s still a juicy 8.25% per annum. That’s why I’ve had it for so long.

Finally, while Persimmon shares have taken a beating, our new portfolio is doing well. With five stocks up and five down, this pot has lost just 2.3% of its value year to date. Again, this shows the benefit of diversifying my investments to reduce the risk of a large loss!

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