It’s been a slippery slope for the Persimmon (LSE: PSN) share price this year. The FTSE 100 housebuilder has halved in value since January. Its board has been forced to take action to acknowledge the “increased uncertainty” of the economic outlook.
In November, management said they would end the capital return programme that has supported some large annual dividend payments since 2012.
Dividend cut: time to buy?
I believe shareholders should brace themselves for a big dividend cut when the 2022 results are published in March.
However, my analysis suggests Persimmon shares should still provide a dividend yield of perhaps 6% after the cut.
On balance, I think this FTSE stock is starting to look like a possible contrarian buy at current levels.
Although the era of ultra-cheap mortgages and Help to Buy may now be over, most experts seem to agree that there’s still a shortage of new housing in the UK.
Persimmon operates at the more affordable end of the market. I think demand for the firm’s new homes will remain stable, even if it does take a little while for the market to adjust to higher mortgage rates.
Director share buying
Insider buying can be a good sign that management see value in their own companies’ shares. After all, no one knows the business better than they do.
I’ve been checking the director dealing for Persimmon and I can see that chairman Roger Devlin spent £252,800 on the company’s shares in October. Mr Devlin paid 1,264p per share — almost exactly the same as the price today.
My guess is that he expects conditions to stabilise over the next year and then perhaps start to recover. If that happens, then buying now could be a good move.
Why Persimmon could be cheap
When I invest in property stocks, the two main valuation measures I use are book value and dividend yield.
I do this to try and minimise the risk of big losses. If a property investment is backed by real assets and provides an attractive income, then my hope is that these attractions will support the share price.
Persimmon reported a net asset value of 1,132p per share at the end of June. That’s enough to cover around 90% of the current share price.
Similarly, my sums suggest that the stock could provide a dividend yield of perhaps 6%, even after next year’s planned cut.
Of course, my strategy doesn’t always work out. Property values can be written down in a recession, as buyers are forced to cut the price they’re willing to pay. Short-term demand for new homes could fall, due to higher mortgage costs and the cost-of-living crisis.
There are no guarantees in the stock market. Persimmon shares could still get cheaper.
But on a medium-term view, I think this housebuilder is likely to deliver positive returns for investors from current levels.
