This dividend stock has humungous comeback potential! Should investors buy today?

This dividend stock used to be the FTSE 100’s biggest, but has fallen due to a weak housing market. Can it make a comeback?

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With its stock price pummeled, housebuilder Persimmon (LSE:PSN) could offer humungous comeback potential for hungry dividend investors. This company just reported a 66% earnings plunge amid housing market headwinds. But beyond the gloom, glimmers of optimism emerge.

Budget conscious

After seeing a massive cut to its dividend earlier this year, Persimmon has maintained its payouts this time. Despite its profit sliding, the dividend stock still yields a reasonable 4.9%. But perhaps more encouragingly, management reiterated their intentions to grow payouts again when possible.

This will be supported by disciplined land-buying and cost-control efforts in efforts to boost the firm’s bottom line. Nonetheless, Investors will also be encouraged to see customer satisfaction reached new heights, showing product and service improvements are paying off.

Although competition and high rates have dented demand, Persimmon’s low average selling price should appeal to budget-conscious buyers. And when the housing market does rebound, the firm could be set to profit en masse as was the case over the past few years, resulting in higher dividends for the stock.

Has it hit a bottom?

But what factors suggest this high-yield dividend stock can rebound strongly? Well, for one, Persimmon is cutting costs and headcount to defend its margins, targeting £25m in savings for FY24. Management is also prioritising profitability over volume this year, avoiding lower margins from lower prices.

Additionally, the developer’s cash stockpile remains robust despite the housing downturn. What’s more, its land bank provides fuel for future expansion once demand improves. Meanwhile, Persimmon’s vertical integration efforts should also bear cost savings over time. This should start to take effect in FY26.

Critically, the order book has rebounded by 49% since the start of the year on resilient interest, showing that its low average selling prices are indeed attracting buyers who are trading down. Provided this figure continues to increase in the coming months, the nadir could be in for the homebuilder and its dividends.

Signs of life

Nevertheless, Persimmon won’t reclaim its past profit peaks overnight. After all, near-term uncertainty remains high for housebuilders and higher mortgage rates continue to dent affordability and prices, as well as the stock’s dividend.

But amid the gloomy outlook, there’s also an opportunity for new life to spring, as the greatest gains sprout after periods of excessive pessimism. And with its valuation cratered, Persimmon offers discounted access to the UK housing market’s enduring potential.

Attempting to time the exact market bottom is futile. But identifying quality assets trading at deep discounts is the proven path to outsized returns. By overlooking temporary gloom and maintaining its generous dividend, Persimmon displays shareholder focus even in challenging times.

Even though the housing market faces near-term hurdles, demand remains structurally underpinned. Persimmon’s strengths, from lowering its cost base to having a robust land bank, position it well for the eventual rebound. For those with patience and vision, this high-yield dividend stock warrants attention.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

John Choong has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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