Trading conditions are becoming tougher for housebuilders like FTSE 100 dividend share Persimmon (LSE: PSN). House prices continue to rise at a strong pace. But the business of homes production is becoming more problematic for a variety of reasons.
A report by the Construction Products Association (CPA) suggested that construction firms face “a host of price pressures arising from both local and global issues”. It said that labour and product shortages along with soaring inflation pose a problem for the industry.
Construction targets in danger?
As a consequence, the CPA slashed its growth forecasts for the entire UK construction sector to 2.8%. That’s down significantly from the 4.3% rise it had previously tipped for 2022.
And the association thinks that output from the private housebuilding sector increase will crawl just 1% higher in both 2022 and 2023. This is down from 3% just three months ago.
Shortages of raw materials and manpower could scupper Persimmon’s output targets in the short-to-medium term. The FTSE 100 company plans to grow production between 4% and 7% in 2022 from last year’s levels.
House prices keep soaring
While this is a less than ideal scenario, the prospect of new home shortages isn’t exactly a catastrophe for the housebuilder. The possibility that supply strains could worsen means that the prices Persimmon can ask for its homes should continue rising strongly.
Latest data from Halifax showed average home prices rose 12% year-on-year in March.
Property shortage continues
It’s my belief that demand for new homes should keep rising strongly. Huge economic uncertainty is worsening the supply crunch as existing homeowners stay put, meaning newly built properties continue selling like hotcakes. According to Zoopla the stock of available UK homes is 42% lower than the five-year average.
Theoretically, higher interest rates could hit Persimmon’s sales as buyer affordability is stretched. But it’s important to remember that rates remain well below historical levels, while massive competition among lenders is helping to reduce costs for new homeowners too.
I think Britain’s colossal homes shortage will take years to solve, keeping property prices pumped up. And when inflationary pressures and supply chain issues reduce, the likes of Persimmon will get back to generating strong profits again.
A dirt-cheap FTSE 100 dividend share
In the meantime, I think the FTSE 100’s housebuilders look too cheap to miss. Persimmon trades on a forward price-to-earnings (P/E) ratio of just 8.3 times.
Persimmon also offers plenty of bang for a buck when it comes to dividends. Its yield of 11.4% smashes the FTSE 100 average by a large margin.
It’s important to note that 2022’s predicted dividend is covered barely by earnings. This is particularly critical given the threat that rising costs and labour and material shortages pose.
Still, I believe that Persimmon’s dividend this year will beat those of almost all other FTSE 100 dividend shares. I think this theme will continue beyond 2022 as well. I’d happily buy this top income stock today.
