The economic rebound could be in severe jeopardy if the Omicron variant proves to be severe. In this climate it might be tempting to run for the hills until the outlook becomes clearer.
This isn’t a strategy I’m thinking of adopting however. There are plenty of UK shares I’m expecting to thrive in 2022 even if the Covid-19 crisis carries on. Indeed, here’s a top FTSE 100 share I’m thinking of buying for next year.
Will the Bank of England boost homes demand?
The housebuilders have had a terrific couple of years as Stamp Duty holidays have turbocharged buyer demand. But even though the tax has fully returned, I’m tipping UK shares like Persimmon (LSE: PSN) to play another blinder in 2022. I’m expecting newbuild sales to remain strong as interest rates remain low versus historical standards, and the government’s Help to Buy support scheme will continue.
The outlook for Persimmon and its peers could get a lot rosier too if the Bank of England (BoE) loosens mortgage affordability rules. Threadneedle Street will consider scrapping a rule that requires borrowers to show they could afford a 3% rise in interest rates. The review slated for the first half of next year could help tens of thousands of renters get onto the property ladder, pushing house prices still higher.
Persimmon is souping-up construction rates to make the most of future opportunities too. It’s on track to build 10% more homes in 2021 than last year. The FTSE 100 builder’s spent some £380m in the year to 8 November to build its land bank for further production growth too.
A dirt-cheap FTSE 100 stock
I’m not shocked that City analysts think Persimmon’s earnings will continue growing in 2022. Last month’s news that average private home reservation rates were 16% higher year-on-year between 1 July and 8 November gives it great momentum moving into the new year. The number crunchers think profits will increase 4% from 2021 levels.
As a consequence, Persimmon looks dirt-cheap from an earnings perspective. At £28.28 per share, the firm trades on a forward price-to-earnings (P/E) ratio of 10.7 times. However, it’s in the dividend arena where Persimmon really looks mightily attractive to me. Predictions of extra dividend growth leave the builder with a mighty 8.6% dividend yield for 2022.
A bright long-term outlook
However, I am concerned about the impact of soaring material and labour costs on Persimmon’s profits column. I’m also mindful that it construction targets could fall if supply chain problems worsen and it can’t source products. That said, I still believe builders like this remain terrific investments for 2022.
The government thinks 300,000 new homes will need to be created every year by the middle of the decade. This could prove to be a huge understatement, in my opinion. Especially so if the BoE loosens those aforementioned mortgage rules. It’s why I’m considering adding Persimmon to my shares portfolio today.
