Investors in Persimmon (LSE: PSN) shares have endured a bumpy ride over the past five years. The house builder’s volatile earnings record has worked with seesawing sentiment to produce some big swings for the stock.
But the dividend payments have been pretty good over the period. So has income from those shareholder payments saved the day for the company’s shareholders? To find out, let’s look at the five-year total returns delivered by the stock.
A losing investment
Investors could have bought some of the shares five years ago for about 2,554p each and it’s been higher since. But today the stock is changing hands for around 1,261p. So that’s a loss of 1,293p per share over the period.
However, shareholders will have collected dividends worth 925p per share over the past five years. So that can be added back to give a net figure of a negative 368p. And that works out as an overall loss on the investment of around 14.4%.
Therefore, a £2,000 investment in Persimmon shares five years ago would now be worth approximately £1,710. Although the exact sum realisable would depend on the effects of transaction costs when buying and selling the shares.
Persimmon’s big yield
But dividends did not ensure a positive outcome. Although they did mitigate the loss an investor would have otherwise suffered over the period.
Nevertheless, Persimmon’s big dividend yield over most of the past five years has not worked to enrich the company’s shareholders. And the reason for that appears to be the huge cyclicality present in the house building sector. Cyclicality in a business can deliver big gains for investors on the way up and take away just as fast on the way back down.
And that’s why I’d question the wisdom in attempting a long-term investment in any cyclical stock. To me, timing is important when it comes to the cyclicals.
And I learnt a lot about that from legendary investor Peter Lynch. He achieved outstanding investment success managing Fidelity’s Magellan fund between 1977 and 1990. The two Lynch books I read are One Up on Wall Street and Beating the Street.
Meanwhile, on 1 March, Persimmon delivered its full-year results report for 2022. And chief executive Dean Finch spoke of caution ahead. He described the current new homes market as “uncertain”. And lower sales rates over the past five months means 2023 completions will be “down markedly”.
City analysts have pencilled in a plunge in earnings of around 36% for 2023. And it’s unclear how much pain is already priced-in with the stock at its current level. But on a brighter note, those same analysts expect the dividend to increase by nearly 23% in 2024. And that puts the forward-looking dividend yield at a bumper 7.7% now.
