Today I am looking at why I believe Persimmon (LSE: PSN) provides terrific dividend prospects in the coming years.
Building monster dividend yields
British housebuilding goliath Persimmon currently offers one of the most lucrative dividend profiles across the entire UK blue-chip catalogue, based on current forecasts.
According to broker consensus, the business is expected to fractionally increase last year’s dividend of 75p per share to 76p in 2014. But the company is anticipated to hike the payout by a more an impressive 27% next year to 96.8p.
This year’s projection creates a gigantic yield of 6%, trashing a forward average of 3.2% for the FTSE 100 as well as a corresponding readout of 3.1% for the complete household goods and home construction sector. And next year’s sizeable hike pushes this formidable readout still higher, to a mind-boggling 7.6%.
Housing market on the up and up
Dividends are expected to trek higher in line with stratospheric earnings expansion, with Persimmon expected to punch mighty growth of 36% and 22% in 2014 and 2015 correspondingly. Despite these impressive earnings increases, however, dividend cover runs in at 1.5 times predicted earnings through to the end of next year, below the widely-regarded security haven of 2 times or above.
Still, the company’s ability generate bucketloads of cash should help soothe investor fears over near-term dividend projections. Net cash stood at £326m as of the end of last month — £212m of this has since been distributed by way of a special dividend — up from just £48m during the same 2013 period.
And I believe that the exciting state of the British housing recovery provides plenty of opportunity for Persimmon shareholders to enjoy stellar earnings and payout expansion beyond next year.
The company noted in this month’s interims that revenues leapt by a third during January-June, to £1.2bn, with the number of completed properties surging 28% to 6,408 from the corresponding 2013 period. And with forward sales revenue also running 28% higher during the first half, at £1.18bn, Persimmon’s long-term profits prospects are looking good.
And latest Markit/CIPS purchasing managers’ index (PMI) construction data released the same day underlined the upward momentum of the house construction sector. Homebuilding activity leapt to 66.6 in June from 62.7 the previous month — this was the highest level since January, with solid demand, favourable funding conditions and rising home prices turbocharging the number of properties being put up.
The promising landscape for Britain’s housebuilders was further highlighted by Persimmon’s decision to add 14,300 new plots during January-July, taking the firm’s total land bank to some 82,300 plots. In my opinion, the business is gearing up to continue delivering stunning income flows to shareholders well into the future.
