In my case, it’s more a question of whether I should buy more Persimmon (LSE: PSN) shares. My current holding hasn’t done well of late, as it’s down 53% over the past 12 months.
Then again, I bought my Persimmon shares for long-term dividend income, and I’ve pocketed some nice annual cash so far. With the share price so badly depressed, this year’s forecasts have been suggesting a dividend yield of 17%.
But that’s based on the special dividends the company has been paying shareholders, to redistribute surplus cash. And on Tuesday, the housebuilder told us it’s decided to conclude its previous capital return programme.
With the UK facing the prospects of a possibly lengthy recession and a slowdown in the housing market, I don’t think anyone will be surprised at that.
Prudential dividend policy
Persimmon’s future capital allocation policy will include paying ordinary dividends at “a level that is well covered by post-tax profits“. And any excess capital that might build up “will be distributed to shareholders from time to time, through a share buyback or special dividend“.
That seems sensible to me. I’d rather see the company retaining capital to invest for its long-term future than focusing on short-term high dividends. In my view, there are too many companies doing the latter these days, and I don’t think it’s financially healthy.
Buy land?
There’s one thing I would like to see, and it’s something Persimmon did the last time we had a period of property weakness. Hopefully, any fall in demand will lead to a decline in land values. And that could provide opportunities for housebuilders to build up their land banks at favourable prices.
Saying that, Persimmon does have a pretty decent high-quality land bank. And it says it expects “land additions in 2023 to be significantly lower compared with 2022” because of that. But I still suspect we could see cheaper land opportunities persisting for a few years yet.
Trading
So far, Persimmon’s trading position still look healthy. The company reckons it’s around 20% ahead of last year on build rates. And it’s apparently on track to complete between 14,000 and 15,000 homes in 2022.
There should be an estimated £700m in cash on the books by 31 December, even after the return of £750m in capital in the year to date.
Too early to tell
This sounds good, but it’s clearly too early to assess the scale of economic pressure on the market in the next couple of years. And Persimmon did say its build progress comes “despite some increased risk from recent elevated cancellation rates“.
The firm also expects its building safety provision “to be increased to £350m, reflecting the broader scope demanded by Government” and due to some other issues.
Verdict
So, will I buy more Persimmon shares? Looking at a forecast price-to-earnings (P/E) multiple of only 5.4 for the current year, I really feel I should do. The only thing that might hold me back is that I don’t have enough cash to top up on all the shares I think are cheap. But if I didn’t already hold Persimmon, I’d buy now for sure.
