The Persimmon (LSE:PSN) share price has been on fire lately. Since the start of 2021, it’s moved up by around 16%. And over the last 12 months, it has increased by 35%. Obviously, this level of growth is hardly extraordinary compared to the upward trajectories of other stocks. But considering that Persimmon is a homebuilder, this growth is quite impressive. At least, I think so, especially since even after this jump in price, the dividend yield is still above 7%. But can the share price climb even higher? And are there any risks I should be aware of?
The rising Persimmon share price
The pandemic has disrupted many businesses, and Persimmon is no exception. Its share price crashed by more than a third in early 2020 as housing construction came to a halt. But over time, as lockdown restrictions eased and the vaccine rollout continued, it could resume building homes. And looking at the most recent trading update, it seems Persimmon and its share price have made a complete recovery.
Build rates have returned to pre-Covid levels, and the management team expect the first half-year 2021 project completions to be in line with 2019 levels. What’s more, due to the continually rising demand – something I’ve previously pointed out – the firm’s forward sales position has increased to £3bn. By comparison, this figure was only £2.4bn in 2020 and £2.7bn in 2019. So that’s an 11% increase versus pre-pandemic levels.
Combining a rising top line with a healthy balance sheet, the management team has announced further dividend payments of 55p in August and December this year. Merging these with the previous interim dividend of 125p last March indicates the reinstatement of its 235p per share annual payout. In other words, the current 7.4% dividend yield looks sustainable in the eyes of management. That’s a promising sign for any income investor.
Nothing is risk-free
Income stocks are often perceived as low risk. But there is no free lunch in the world of finance, and Persimmon has some threats on the horizon. The main one being government support schemes.
For several years, the Help-to-Buy scheme has made housing considerably more affordable for individuals, especially for the younger generation. Consequently, homebuilders like Persimmon have greatly benefited from the increased volume of sales. But this scheme is soon coming to an end and has already been getting more limited. Maximum home price restrictions were recently added, and the entire programme is timetabled to end in March 2023.
Given how dependent homebuilders and buyers have become on these support programmes, I think we’re likely to see some volatility in house prices when they come to an end. Needless to say, that’s not good news for Persimmon or its share price.
The bottom line
This looming threat remains a prominent issue. However, the management team still has another two years to prepare. During that time, sales are likely to keep rising, with the proceeds being returned to shareholders through dividends. And so, I believe the Persimmon share price can continue climbing from here. At least, for now. Therefore I would consider adding this business to my income portfolio. But, I’ll be keeping a close eye on how the company intends to move forward post-2023.
