I’ll be upfront here and say I think the housebuilding sector is a great long-term investment, and that I own Persimmon (LSE: PSN) shares. I bought mine before the Covid-19 crisis sent the Persimmon share price plunging. But despite the sharp drop when the lockdown began, Persimmon shares are now pretty close on breaking even so far in 2020.
It’s surely in part because Persimmon has what’s needed to survive short-term downturns, which many do not. That’s a long record of healthy cash flow and a solid balance sheet. In the short time that house sales have been allowed to start moving again, demand is already high and prices are pushing up.
Persimmon’s first-half results noted those key strengths on Tuesday. “Despite the significant disruption, the group’s preparedness, agility and strength ensured a robust first half performance with 4,900 new home completions and further good progress made on our customer care improvement plan“, said CEO Dave Jenkinson.
Persimmon share price up
The Persimmon share price gained 6% on the day of the news. And Persimmon could turn out to be one of the big recovery success stories of 2020. After plunging deeper than the most, Persimmon shares have so far put in one of the best recoveries from their low point of the year.
And if we look back over the past five years, the Persimmon share price is up 34%. Now, that’s a pretty respectable return just on its own. But Persimmon has been paying out big dividends too – and there was upbeat news on that front on Tuesday too. The firm suspended the final 2019 dividend and its planned special dividend in the early days of the pandemic. But dividends are already on their way back.
Dividends are back
The company expects to have delivered around 45% of its anticipated second-half completion by September. And with that in mind, Mr Jenkinson said “the board is proposing a modest interim dividend of 40p per share“.
He added: “Further dividend payments this year will remain under close review“. But even if we only see the interim payment repeated at year-end, that will still provide a yield of 2.9%. That’s modest, but I’d welcome it in this tumultuous year. I think anything better than that will give the Persimmon share price a further boost.
Long-term safety
The bottom line for me is that when a company is selling into a market where there’s a huge and chronic shortage of supply, it will do well. And it can make a terrific long-term investment, providing it’s financially well managed. For my money, Persimmon fits that bill. And I can see the Persimmon share price progressing nicely over the next five years and beyond.
It’s part of my general defensive approach, sharpened by this year’s stock market crash. The best strategy, to me, is to invest in companies that provide what people need the most. The ones that make the things that we just can’t live without. That’s food, medicines, household consumer products… and homes to keep them, and ourselves, in.
