It’s very rare to see dividend yields of 10%+, which are also sustainable. However, Persimmon (LSE: PSN) offers just this. In fact, after falling around 36% in the past 12 months, the housebuilder now boasts a dividend yield of 11.5%. This is far larger than most other dividend stocks in the FTSE 100. These are the reasons why I’m tempted to snap up some Persimmon shares.
Trading updates
With house prices at their all-time high, profits at Persimmon have been soaring. In fact, in full-year 2021, the metrics were extremely strong. For example, new home completions totalled 14,551 compared to 13,575 the year before, while revenues were able to rise 8.4% to £3.6bn. Even more impressive was the 12% year-on-year increase in profits to £973m.
The first few months of 2022 have also been positive, and demand for new homes continues to be larger than supply, resulting in extremely low cancellation levels and a strong forward order book. The balance sheet is also very strong. In fact, even after returning £400m to shareholders at the start of April and investing £314m in land opportunities, the group still holds around £446m of cash. This is more than enough to pay the £350m dividend that goes ex in a month. Therefore, as well as the large dividend, it’s also sustainable and well covered by profits. These are factors I like to see in a dividend stock, which is why Persimmon is my favourite in the FTSE 100 right now.
My concerns
Although this all seems extremely promising, there are a few worries that must be highlighted. For example, there are several short-term uncertainties revolving around the housing market now. These include the rising interest rates, cost inflation and the end of Help to Buy. This means that, although house prices were able to rise another 1.1% in April, there’s a general feeling that growth is about to slow. This is due to the rising cost of living and high interest rates.
In addition, there’s the government’s building safety pledge, under which the country’s largest housebuilders, including Persimmon, have agreed to fix historic fire safety issues. This commitment amounts to around £2bn in the short term and should raise a further £3bn over 10 years. As such, Persimmon have already had to set aside £75m, and there may be more to come soon. There’s a possibility that this could impact the firm’s dividend.
Why is Persimmon my favourite FTSE 100 dividend stock now?
There are many other FTSE 100 dividend stocks that I’m particularly keen on. For example, Legal & General has a solid 7.5% yield, and has seen growth year after year. NextEnergy Solar Fund is another dividend stock I own, which has also seen significant success recently. However, with the 11.5% yield, alongside the fact that this is covered well by profits, Persimmon takes my primary spot. It’s likely that I’ll add some Persimmon shares to my portfolio in the newt few weeks.
