The FTSE 100 is filled with dividend-paying stocks. Yet Persimmon (LSE:PSN) seems to be one of the biggest yielders available today. The share price has taken a slight tumble over the last 12 months, falling by just over 11%. But despite this downward trajectory, management has actually increased its dividend payout. So, it’s not surprising to see shares currently offer a yield of 9.8%!
Is this one of the best dividend stocks to buy for my portfolio? Let’s explore the income potential and the risks that come with it.
Falling share price, rising business
I’ve already said that the FTSE 100 stock hasn’t had the greatest run lately. But looking at the latest trading update, it’s hard to fathom why.
Yes, the pandemic has been pretty disruptive to Persimmon’s home-building exploits. And while construction sites are once again active, supply restrictions on certain building materials continue to impede progress. But the situation is improving.
As a result, a total of 14,551 new homes were completed in 2021. That’s a 7% jump from a year ago, but it remains below pre-pandemic levels. Fortunately, rapidly rising home prices have actually elevated new housing revenue above what was reported in 2019 to £3.45bn.
Combining this with a balance sheet flooded with £1.25bn of cash, and suddenly I’m not surprised to see dividends per share return to 235p – the same as 2019.
As construction operations continue to recover and housing prices climb, I wouldn’t be surprised to see dividends do the same. And that, to me, looks like an excellent buying opportunity for my income portfolio.
The risks of this FTSE 100 dividend stock
As exciting as this recent performance is, some headwinds are approaching. Inflation is partially contributing to the rising house prices, and at the moment, this is working in Persimmon’s favour. But higher inflation has resulted in the Bank of England hiking interest rates, which makes mortgages and in turn, properties, less affordable.
To make matters worse, government support for first-time buyers is coming to an end in March next year. This could further impact affordability. And if property sales start to suffer while more homes are completed, it could cause an imbalance between supply and demand.
Needless to say, that’s not good news for this FTSE 100 stock or its dividends. Even more so when considering the margin pressure currently being applied due to higher materials costs.
Time to buy?
While this risk factor is quite concerning in the near term, over the long term, I’m not too fussed. This market does have a cyclical nature, which could adversely affect the dividend yield. But over the next decade, I don’t see the need for UK housing to disappear, especially with a growing population.
Therefore, despite the risks, I’m personally tempted to add this FTSE 100 stock to my passive income portfolio today.
