I’m always keeping an eye out for dividend stocks that are benefiting from an increasing dividend yield. This means that I can make my investments work harder, due to the higher yield. Over the past couple of months, the Persimmon (LSE:PSN) dividend yield has been moving higher, and is now at 10.8%. So should I buy this juicy stock for income for May?
Strong financials help the dividend stock
Persimmon is a leading UK-homebuilder. It posted strong 2021 results earlier this year, highlighting growth in most metrics versus 2020. For example, new home completions rose to 14,551 from 13,575 the year before. Profit before tax also grew from £783.8m in 2020 to £966.8m in 2021.
One of the attributes of Persimmon that makes it a top dividend stock is the profit margins. For 2021, the new housing gross margin was 31.4%. In theory, the higher the margins that a business has, the more resilient it is to any unexpected changes. It also should contribute to a strong net profit figure. From this, some of the profit can be used to pay out to shareholders in the form of a dividend.
With the annual report, a dividend per share of 125p was announced. Along with the interim dividend, this brings the total dividends to 235p in the last year. With a share price of 2,170p, a dividend yield of 10.8% is the result.
Looking forward, I think that the outlook remains positive for this dividend stock. We didn’t see the crash in the property market at the end of last year that some were expecting. In fact, property prices continue to move higher, but at a slower pace. The higher prices allow Persimmon to increase revenue as each plot of land is able to generate more revenue when the house gets sold.
I’d also mention that the company has forward order sales of £2.21bn. This provides a good buffer for whatever 2022 brings for the business.
A falling share price pushing up the yield
One point I need to be careful of is share price movements. The reason why the dividend yield has increased in recent months is due to the share price falling. Over the past year, the Persimmon share price is down 31%.
Part of the falling price can be put down to the uncertainty around dangerous cladding on buildings. Earlier this month, Persimmon committed to making sure its properties were made safe, with an estimated cost of £75m. I think that this cost could rise when all is said and done, so could be an unwanted burden for the future.
I also think that some reputational damage that has been priced in. The cladding problems might lead some buyers to steer clear of Persimmon properties and look elsewhere.
However, in order to benefit from high dividend yields, I do need to sometimes take a risk and buy when the share price is low. After all, if the share price jumps, the yield will come down and be less attractive. With that in mind, I’m considering buying shares in Persimmon now as a top dividend stock.
