When buying shares for my portfolio, one of my aims is for them to make me a passive income. With that in mind, should I buy FTSE 100 house builder Persimmon Homes (LSE:PSN) for my portfolio? It currently has a tempting 8% dividend yield.
FTSE 100 opportunity
Persimmon Homes is one of the UK’s largest and most successful house builders. Headquartered in York, the business comprises 31 regional operating businesses for nationwide coverage. The UK housing market is currently experiencing a post-pandemic boom and Persimmon could be well placed to ride the wave with its footprint and track record.
As I write, the Persimmon shares are trading for 2,892p per share. At this point last year, shares were trading for 20% less at 2,466p per share. In the year to date, the share price has increased nearly 5% from 2,767p per share to current levels. I believe this share price rise is due to increased demand for new homes and Persimmon’s recent performance. At current levels, Persimmon has a price-earnings-ratio of approximately 14, which I do not consider expensive. Add to that its dividend yield, and I believe it could be a good FTSE 100 opportunity for my portfolio.
Performance and passive income opportunity
Last month Persimmon released a trading update covering 1 January to 30 June. It reported that new home sale completions were close to pre-pandemic levels last seen in 2019. A forward order book at the end of June equated to £1.82bn. Persimmon also successfully purchased over 10,000 new plots across 48 locations.
Reviewing the financial highlights from Persimmons update, the FTSE 100 incumbent said it would be paying a dividend of 110p per share in respect of the year ended 31 December 2020 to be paid on 13 August 2021. In addition, revenue rose to £1.84bn which is higher than 2020 and 2019 levels for the same period. Furthermore, cash of £1.32bn also exceeded 2020 levels for the same period.
These solid financials and dividend payment mean that Persimmon has a dividend yield of approximately 8%. This is one of the best dividend payments across the FTSE 100 index. If I were looking solely to make a passive income, Persimmon shares could contribute to this.
Risk and reward
Like all FTSE 100 stocks with a juicy dividend yield I must consider the risks involved. First, some analysts point towards this increased demand as a housing bubble. Almost all bubbles burst so this resurgence and performance could come to an end. Also, since the pandemic, the cost of raw materials for house builders has increased. This rise in materials cost could affect the financials and in turn any dividend payment for investors.
Overall I understand there are credible risks but I would consider adding Persimmon shares to my portfolio. It is one of the biggest players in the UK house building market and has the reach and footprint to maximise its profits based on current tailwinds in the housing market. I believe this could mean more profit and more dividends, increasing its already impressive dividend yield and my passive income.
