Should I go for the falling Persimmon share price, or this soaring dividend for my pension pot?

Persimmon plc (LON: PLC) is falling out of favour, but there are other stocks out there offering rising dividends.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Illustration of bull and bear

Image source: Getty Images.

Persimmon (LSE: PSN) is a house-builder I’ve liked for ages, and over the past five years its shares have almost doubled. Several years of big double-digit rises in earnings per share certainly helped, though growth that strong inevitably had to slow.

While that’s come to pass, sentiment towards the housing sector has also been shaken by Brexit fears, and the Persimmon share price has declined by 23% since June’s peak. Comments from Bank of England governor Mark Carney haven’t helped, after he reportedly suggested that house prices could fall by around a third should we face a disorderly exit from the European Union.

That was a worst-case scenario, but it’s the kind of thing that can seriously raise uncertainty — and uncertainty causes share prices to wobble.

Warning

A profit warning from Crest Nicholson this week further shook the sector, with the typical second-half pick-up in demand for homes in London and the South of the country appearing not to have materialised this year. But I agree with fellow Fool Peter Stephens’ suggestion that Crest Nicholson has a significant safety buffer, and I don’t see its dividend as coming under any real pressure.

I think the same is true at Persimmon, which is awash with surplus capital — so much that, with special dividends included, forecasts are suggesting total dividend yields for this year and next of better than 10%. With forward P/E multiples of around eight, I see a safety margin here too.

Still, while Brexit negotiations continue with their appearance of stumbling from one obstacle to another on a daily basis, I can see house-builder price weakness continuing — and it could carry on for some time. But to me that suggests possibly better buying opportunities.

Overlooked star?

If forecasts prove accurate, the dividend from Character Group (LSE: CCT) will have more than trebled in five years — from 7.25p in 2014 to 23p in 2019. That suggests yields of 4.4% this year and 4.8% next, and with the shares on P/E multiples expected to drop to 10 by 2019, I’m wondering why the market isn’t more interested. 

I’m guessing it’s the 10% EPS drop predicted for this year that’s putting people off, after several years of solid growth, but I’m thinking a 19% rebound indicated for 2019 could quickly restore a bit of bullish sentiment.

At 500p, the share price is just about unchanged over the past three years, though with a few ups and downs along the way. That’s after 2015’s massive rise following on from the company’s recovery, and it highlights what I see as Character Group’s biggest weakness — its fortunes are governed by the toys and games market, which is greatly at the whim of each year’s fads and fashions.

Strong progress

A trading update last month was upbeat, with the company speaking of “strong demand for our core ranges and new introductions,” and expressing confidence in its prospects for the all-important Christmas season.

On Thursday the firm reported the acquisition of a 55% holding in Proxy, a Danish toy distributor, with the total payable being subject to future performance. The company says this should “potentially enable frictionless access to EU markets post-Brexit,” which is certainly an important consideration.

I see Character Group as tempting.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Alan Oscroft 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.

More on Investing Articles

Passive and Active: text from letters of the wooden alphabet on a green chalk board
Investing Articles

How I’d invest in UK dividend stocks to generate passive income for retirement

How I plan use the iShares UK dividend fund to invest in high-yield stocks in the UK to generate passive…

Read more »

Black woman using loudspeaker to be heard
Investing Articles

GSK shares plummet 15% in a week! What’s going on here?

GSK shares had a bad time last week. They're down 15% as investors' sentiment soured ahead of litigation proceedings in…

Read more »

Burst your bubble thumbtack and balloon background
Investing Articles

Stock market recovery: have all the bubbles now burst?

Asset bubbles keep on coming, and here's what I'm doing to navigate through them and invest for the stock market…

Read more »

Shot of an young Indian businesswoman sitting alone in the office at night and using a digital tablet
Investing Articles

How I’d invest £290 a month in UK shares for a passive income that beats the State Pension

UK shares can offer a lucrative path for passive income. Our writer considers a plan to double his State Pension.

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

3 of the best shares to buy now with £2,000

I reckon the best shares to buy now have strong growth in earnings and recent good news flow, such as…

Read more »

Young female analyst working at her desk in the office
Investing Articles

How I’m aiming for £500 a month in income from dividend stocks 

Here's my three-step plan for achieving a growing income from dividend stocks and three companies I'd use to help execute…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

UK shares are cheap! So why is Warren Buffett ignoring them and should you too?

Many British shares are trading cheaply and pay dividends. This is normally the hunting ground for Warren Buffett, yet he's…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

How I’ve increased my passive income by 600%

Finding the right opportunities can bring spectacular results. Here’s how our author has managed to increase his monthly passive income…

Read more »