Persimmon (LSE: PSN) shares have fallen 50% in the past 12 months. So if I’d bought 10 years ago, I must be sitting on a loss now, mustn’t I?
Well, no. Whenever there’s a fear of house prices falling, investors desert the sector. And I think the fears have rarely been more realistic than right now.
But Persimmon shares have done well in the long run. Even after this year’s crunch, the Persimmon share price is still 65% ahead of where it was 10 years ago. Over the same period, the FTSE 100 has gained just 21%. And it gets better.
The share price gain doesn’t include dividends. And Persimmon has been handing over some impressively large bundles of cash.
Surplus cash
Over the past few years, shareholders have had 125p per share as an ordinary dividend. And we’ve had surplus cash returned through an annual special dividend of 110p per share.
That total of 235p represents a dividend yield of nearly 18% on the current Persimmon share price. On the share price 10 years ago, it would be a massive 29%.
Dividends haven’t been that high for the whole of the past 10 years. But had I invested £1,000 in Persimmon shares a decade ago, my dividend income would have added an extra £2,000 to the pot.
My initial £1,000 would have grown to £3,650, including share price gains and dividends. My investment would have more than trebled, even after the pain of the past 12 months.
Reinvesting
Oh, and that ignores what would have happened had I reinvested my dividend cash in more Persimmon shares. The new shares would have generated more dividends, which I could have reinvested in even more shares.
What do I learn from all of this? Over the long term, dividends can make the most difference. Until I eventually sell, the share price won’t matter — except that if it falls, I could buy even more shares when I reinvest my dividends each year.
It also warms me to the idea of investing in cyclical sectors. Many investors think it’s a risky strategy, and worry about timing their entries and exits. We don’t want to be buying near the top of a cycle, do we?
No timing
But I don’t even think about that, because I have no idea how to time the markets. Instead, I would just keep buying a bit more at regular intervals, as I had the free cash. That way, I’d simply buy fewer shares when prices are high and more when they’re low.
All I need to see is a business where I reckon there will be long-term demand, and I believe that’s true of housing.
What’s the risk? Well, special dividends will not continue forever. And it’s entirely possible we could be heading for a weak property market that could last some years. If that happens, dividends could be cut, and the Persimmon share price could fall further. I reckon cyclical stocks can be very risky for investors with a short-term horizon. But I’m not one of those.
