It is a truth self-evident that the ultimate goal of investing is long-term returns. However, it will always be nice to make a quick buck on particular FTSE shares with attractive dividends.
Investing in a successful company can often bring instant results in the form of a regular payment distributed to shareholders.
Most major London-listed firms reward their shareholders in this manner, with the average dividend yield on the FTSE 100 being 4.18% at the time of writing. Some go above and beyond the average. Step forward Persimmon (LSE:PSN).
A juicy dividend
The homebuilder has become renowned for its generous dividend yields, and the yield forecast of 17% for 2022 is no different. However, there is a lot to unpack before I start buying up.
Persimmon’s stock has fallen significantly this year. The 59% collapse could be a sign of a poor-performing company, or an opportunity to invest at a historically low price of around £11.90.
The latest decline in Persimmon’s stock can be attributed to the new chancellor Kwasi Kwarteng’s ‘mini-budget’, which was focused on heavy tax cuts, creating turmoil in the markets and raised fears of higher inflation.
The response by the Bank of England was to affirm a higher interest rate policy if and when required. The likelihood of a higher base rate is already impacting the property market with lenders pulling several mortgage deals this week.
And, as a large-scale housebuilder, Persimmon will suffer if the pound remains near all-time lows, considering its importation of materials. Margins could be trimmed further when factoring in continuing cost inflation.
Stamp duty cut beneficiary?
However, another piece of government policy could positively impact Persimmon’s prospects, and that is the stamp duty cut. This move could encourage first-time buyers with a deposit to consider a bigger home.
Overall, the stamp duty cut should prop up the housing market in the short term at least, insulating Persimmon from the broader economic downturn to an extent.
Now, let’s look at the company’s recent financial performance and consider the impact of that on dividend policy.
Revenue went down by 8% to £1.69bn in the first six months of 2022, but £750m was returned to shareholders by July. Persimmon also expects a busier last six months of the year.
When looking at the dividend coverage metric — the number of times a firm can pay dividends to its shareholders using its net income — Persimmon recorded a ratio of just 1.06 in 2021.
This ratio, plus a potentially weaker overall annual performance, could indicate the company’s dividend yield is unsustainable at the current rate.
However, even if the dividend were to fall by several percent, it would still be extremely attractive, and Persimmon would remain one of the highest dividend-yielding FTSE shares.
Considering all of the factors discussed above, I won’t be hesitating to invest in Persimmon shares at the current low price, not just for the juicy dividend, but also because I can’t see the house market crashing any time soon!
