Persimmon’s (LSE: PSN) share price has fallen sharply since the beginning of the year. Confidence in the FTSE 100 housebuilder has sunk amid signs of a cooling UK homes market. On top of this, concerns over severe interest rate rises have grown as inflation readings have sailed above expectations.
So any action by the Bank of England could have large consequences on homebuyer affordability.
These threats need to be taken seriously. But I think it could be argued that these risks are reflected in Persimmon’s share price. As I write, the firm trades at £25.75 per share, resulting in a forward P/E ratio of 9.9 times.
What really grabs my attention though is the 9.4% dividend yield currently available to investors.
UK share investors like me need to think about more than just yield when looking for dividend stocks to buy. A high yield is sometimes the clearest sign that a company is a dividend trap. Other considerations include poor liquidity, high debt levels and a patchy profits outlook.
I don’t think any of these dangers apply in the case of Persimmon. I think it’s one of the best FTSE 100 dividend stocks to buy right now.
Another strong trading update
Last week, Persimmon told the market that it faces “some nearer term uncertainties remain” as the pandemic rolls on. But on the whole, its mid-January trading update reinforced my belief that the builder can meet the City’s dividend expectations. A 241p per share payout is currently anticipated for 2022, up from the 235p reward shelled out last year.
Persimmon said forward sales as of 31 December were up 20% from 2019 levels, at £1.62bn. They were also roughly in line with those recorded at the end of 2020. The builder also made encouraging comments regarding the state of its balance sheet.
It had £1.25bn worth of cash on the books at the turn of 2022, up fractionally from a year earlier. Persimmon also had a £300m undrawn credit facility going into the new year. I’m confident the company has the liquidity to continue paying big dividends, even if the market experiences some near-term softening.
Hiking construction rates to boost shareholder returns
Persimmon is taking steps to keep delivering big cash rewards to shareholders by hiking production rates too. The FTSE 100 business grew completions by 7% year-on-year in 2021 and has targeted further growth in the years ahead. Indeed, it shelled out £460m last year to add an extra 20,500 plots to its land bank to make its plans a reality.
I’m personally backing Persimmon to continue growing earnings and dividends long after 2022. The supply of new property in the UK looks set to continue lagging demand by a long chalk, a combination of faltering government plans to build its way out of the crisis and the probability that interest rates will remain way below their historical norms. This means the prices that Persimmon and its peers can ask for its properties should continue climbing.
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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.
