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8% yields make this FTSE 100 stock a brilliant buy

I’m a big fan of the FTSE 100’s legion of housebuilders and have held shares in two of the index’s mainstays for some years now (Taylor Wimpey and Barratt Developments, while you’re asking).

Persimmon (LSE: PSN) is another share I would be happy to splash the cash on as I expect trading conditions for these sector companies to remain favourable for a long, long time to come.

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Some trepidation continues to blow through the housebuilding segment and this is reflected in Persimmon’s 3% share price reversal for the first three-and-a-half months of 2018. This is hardly catastrophic but does stand as a stark contrast to 2017 in which the firm’s market value swept 55% higher.

Investors remain cautious given the murky political and economic backcloth that many fear could derail first-time buyer appetite. I see no reason for such extreme pessimism, however, as industry data continues to hold up extremely well. Just this week, for example, Halifax announced that the average UK house price rose 1.5% in March, the biggest monthly rise since August.

Build a fortune

I’m not disputing that the market has undoubtedly deteriorated since the EU referendum as buyer jitters have indeed grown. However, for the listed homebuilders there’s still plenty of space to deliver fertile shareholder returns thanks to the colossal housing shortage that keeps driving demand for newbuild properties.

Persimmon itself noted recently that total forward sales were up 7.5% year-on-year as of December, at £2.03bn. And the trading backcloth has remained robust since then, with the company advising: “We have experienced encouraging levels of customer activity in the first eight weeks of the 2018 spring season with healthy visitor numbers to [our] development sites.

In this environment it’s no surprise the City expects Persimmon’s profits to keep growing, albeit at a slower pace than previously (rises of 3% are tipped for both 2018 and 2019).

Consequently, dividends are expected to continue outstripping the broader market with projected rewards of 215p and 221p for 2018 and 2019, respectively, yielding 8.1% and 8.3%.

As I say, Persimmon isn’t without its risks. But I believe a prospective P/E ratio of 10 times more than reflects these troubles, in my opinion, and provides plenty of upside given that the country’s housing shortfall looks set to extend long into the future.

Bank on this beauty?

Banco Santander (LSE: BNC) is another bargain-basement dividend share I reckon should deliver brilliant returns long into the future.

Supported by an anticipated 9% earnings improvement in 2018, an estimate which creates a low forward P/E ratio of 10.7 times, Santander is predicted to lift the dividend to 22 euro cents per share. And as a result, share pickers can enjoy a blistering 4.1% yield.

The great news doesn’t stop here either. With the bottom line likely expected to swell an extra 11% next year, City brokers expect the bank to raise the dividend again, to 24 cents, meaning the yield moves to a terrific 4.5%.

Stable economic conditions in Europe convince me that Santander is in great shape to make good on these predictions. And thanks to rising population and personal affluence levels in its emerging Latin America markets, I’m convinced the firm has what it takes to deliver strong returns in the years ahead, too.

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Royston Wild 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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