Persimmon (LSE: PSN) is a FTSE 100 share that’s currently yielding almost 8%. As an income investor, this is very attractive to me. What’s more, the stock isn’t expensive. It trades on a current price-to-earnings (P/E) ratio of 14x, which means I wouldn’t be overpaying.
So would I buy this FTSE 100 stock now? Using the two metrics I highlighted above, it’s a definite yes from me. I find these numbers too hard to ignore.
Trading update
Last week, Persimmon gave a trading update to the market. And on the whole, it was positive. Customer demand for new homes has been strong across the UK. The firm also had a healthy forward order book of £1.82bn as at the end of June, compared to £1.86bn in 2020 and £1.62bn in 2019.
A housebuilder needs to have a quality landbank in order to build homes. So it’s encouraging to see that it has been pursuing investment opportunities by purchasing over 10,000 new plots across 48 locations. I’m confident that this pipeline should continue to fuel growth.
Strong position
What I really like about this FTSE 100 stock is that it’s in a financially strong position. It’s great to see that Persimmon’s balance sheet and liquidity is robust. As of the end of June, the company held £1.32bn in cash. Let’s not forget that having liquid assets is key, especially in times of uncertainty.
Persimmon also has an undrawn £300m revolving credit facility, which it can use if times get tough. This has been extended to 31 March 2026. Again, having such facilities in place provides it with a safety net in challenging periods.
Risks
Clearly, government incentives such as the Stamp Duty holiday have helped the firm. But this is now starting to taper off, which could impact property sales going forward and hence the stock price.
My other concern it that while Covid-19 restrictions are easing, the pandemic is far from over. Uncertainty over the UK economic recovery, including employment and consumer confidence, could hit the housing market.
Fundamentals
But despite these risks, housing market fundamentals remain supportive for Persimmon. Low interest rates, strong customer demand and improving mortgage availability should help it.
But don’t just take my word for it. Earlier, this month, broker Liberum named Persimmon and Taylor Wimpey as two of its housebuilder top picks with price targets of 3,400p and 195p respectively. It expects “material upside” from these two stocks.
Liberum also believes there’s “good value in the sector” and that positive updates “should reassure investors that trading remains strong, and the Stamp Duty holiday has not been the main driver of demand”.
Should I buy?
Persimmon has a strong financial position and isn’t looking expensive at the moment. The shares also come with an attractive income. For me, the stock ticks a lot of boxes. Of course the dividend isn’t guaranteed and a downturn could see the payment being cut.
But I’m confident that the company is doing the right things. Hence I’d snap up the FTSE 100 stock.
