Persimmon (LSE:PSN) shares have been part of my portfolio for some time. And, naturally, I’ve been disappointed by the firm’s performance in recent months.
Obviously, the industry hasn’t been conducive to growth with interest rates rising. But I was also concerned by the firm’s massive underestimation of its fire safety pledge.
But let’s take a look at how successful a three-year investment would have been, and what the future looks like for Persimmon.
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Disappointing returns
If I’d invested £500 in Persimmon shares three years ago, today I’d have around £240, plus dividends. That’s because the stock is currently down 52% over that period. It’s worth noting that plenty of those losses have come over the past 12 months. It’s down 39% over a year.
However, Persimmon’s sizeable dividends would have made up for some of the losses. The housebuilder paid 345p in 2020 and 235p in 2021. In 2022, the dividend yield reached 20% as the stock priced crashed — it had also started the year as the biggest dividend payer on the FTSE 100.
Challenges to overcome
The housing sector is facing several challenges in 2023 — most of these were present at the end of last year. These including rising interest rates, which have a negative impact on the demand for new homes, an end to the help-to-buy scheme, and decade-high cost inflation.
There’s another issue too, and it’s one that angered me as a shareholder. In spring 2022, Persimmon said that its fire safety pledge — the cost of re-cladding homes deemed unsafe after the Grenfell Tower disaster — would set it back £75m. However, just six months later, it raised its estimates to £350m — approximately 40% of pre-tax profits in 2021/2022.
Dividend cut
It’s definitely going to be a tough year for Persimmon and its peers. In a January update, the firm highlighted that forward sales had fallen to £500m, from £1.1bn a year ago, representing a 54% fall.
Amid this challenging environment, Persimmon said it would be cutting its dividend — the 2022 dividend per share will be announced in March. This is perhaps unsurprising as an 18% dividend yield — as it was when the cut was announced — was clearly unsustainable.
But in the current environment, as a shareholder, I’m content with the dividend being cut. I’d rather see the company making sensible decisions rather than rewarding shareholders when it can’t afford it.
It’s also worth noting that Persimmon has a positive cash position that will help it navigate this challenging period. The firm had £860m in cash as of 31 December, down from £1.25bn a year ago. I assume, as alluded to in the report, that the fire safety pledge has played a role in reducing cash reserves.
So would I buy this stock? Well, I already own Persimmon shares, but I’m not buying any more right now. I’m concerned there might more downward pressure before things get better. However, I’m willing to hold what I have.
