News flow surrounding Persimmon (LSE: PSN) may not have been impressive in recent days but I remain convinced that it’s a red-hot dividend share worthy of investment today.
In a rare, disappointing update on Wednesday it advised that in the four months to May 1 its sales rate had fallen back to 5%, while forward sales had fallen back to around £2.7bn from £2.8bn a year earlier.
Added to this, Persimmon said that it expected building costs to rise 4% in 2019. It’s no wonder then that, although prices of its homes rose fractionally to £237,850 during the period, City analysts are expecting earnings at the firm to flatline this year.
As I mentioned in a previous article, the Footsie builder has immense problems at the moment as it battles growing accusations of shoddy workmanship from disappointed homebuyers, claims which first hit the national media in March and are bound to have hit sales still further in the aforementioned trading period.
Long-term gain > short-term pain
Persimmon may have to grasp the nettle like Bovis Homes did a couple of years ago when the FTSE 250 firm sacrificed the quantity of new homes to improve quality, a situation that may crimp profits growth beyond the current year.
I’m confident, however, that the company should still prove a lucrative blue-chip for long-term investors, given the size of the country’s homes market imbalance and the strength of first-time buyer demand, as Bovis itself has shown since it took the scythe to production levels in 2017.
Indeed, latest government figures showed just how strong buying appetite remains right now, even as the outlook on Brexit is even muddier than it’s been so far. According to the Ministry of Housing, Communities and Local Government, lending through the Help To Buy incentive scheme hit £3.4bn in 2018, soaring from the £2.9bn in loans completed in the prior year and hitting new heights for the fifth year in a row.
Big yields, great value
It’s clear that underlying homebuyer demand remains robust despite the broader economic and political concerns that many citizens have. And it’s not a surprise, in my book — the mortgage product war being fought by the country’s banks and building societies is still intensifying, with lenders aggressively attempting to entice customers through the door by slashing rates, cutting fees, raising loan-to-value thresholds and so forth.
To put it simply, some of the products out there appear too good to be true and the pull of these ultra-generous products is trumping any other fears that first-time buyers might be having. And I believe that lending conditions should continue to support sales at the likes of Persimmon and the rest of the builders, given the patchy UK economic outlook that should stay the Bank of England’s hand on raising rates, and the rise of the challenger banks which is giving traditional lenders a real run for their money.
So I would say forget about predictions of zero earnings growth this year, and instead bask in Persimmon’s low forward P/E ratio of 7.7 times and giant 9.2% yield. I think the Footsie firm’s a great share to buy today and hang on to for many years to come.
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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.