Shares in homebuilder Persimmon (LSE: PSN) have fallen heavily over the past year. The share price has lost 42% in that period. But, so far in 2023, the shares have moved up 13%.
I think that could be in part because investors are reassessing the outlook for the Persimmon dividend. At today’s price, it may look like a high-yield bargain. So should I consider adding it to my portfolio?
High historical yield
A share’s dividend yield is an expression of the annual dividend per share as a percentage of its price. So a falling Persimmon share price has had the effect of pushing the yield up.
On paper at the moment, it is a whopping 16%. That could certainly be a good boost for my passive income streams – if I received it.
A change is coming
I say “if” because that yield is based on what the builder has paid shareholders in the past. As with all shares, that is not necessarily an indicator of what might happen in future.
Persimmon, in fact, has explicitly set out a new capital allocation policy that could have big implications for its dividend. The company is due to announce final results at the start of next month. At that time it will also reveal last year’s dividend.
Persimmon dividend forecast
In setting the payout, the company says it “will carefully consider the business’ performance, financial position and outlook”. On top of that, the firm has already made it clear that there will be no special dividend for last year.
The company has said that sales volumes showed a 2% annual rise last year, while average selling prices moved up 5%. That does not reveal what earnings are likely to come in at, although for the first six months pre-tax profit showed an 8% year-on-year decline.
If that is roughly maintained at the full-year level, I think the company could comfortably afford to maintain last year’s ordinary dividend of £1.25 per share.
Potential bargain
At today’s Persimmon share price, that makes for a yield of 8.7%. That is a high yield, in my opinion.
It is certainly lower than the backward-looking yield of 16%. But that does not take away from the attractiveness of potentially adding a share yielding almost 9% to my portfolio.
On top of that, the money Persimmon saves by scrapping its special dividend last year is not simply lost. The firm can can keep the cash in the business, either for operations, or to pay out in dividends at some future date.
So I see the current Persimmon share price as a potential bargain for my portfolio. The yield is attractive and could become better yet in future. The firm has a proven business model with high-profit margins and I expect demand for new housing to remain robust due to a supply shortage.
Wait and see
So why am I not buying? I am sorely tempted – but have decided to wait for now. Even if demand is high, falling house prices could eat into the homebuilder’s profits. That could threaten its dividend – and keep the Persimmon share price subdued.
So I am waiting to see what happens to the housing market in the coming months before potentially making a move.
