The homebuilder Persimmon (LSE: PSN) has been an attractive income share in recent years. Its backwards-looking yield is a mouth-watering 16%. But with a cut on the cards, what is the Persimmon dividend forecast? Do the shares merit a place in my portfolio?
Changes afoot
In the short-term future I expect the yield to fall.
The company announced in November that there will be no special dividend in respect of last year. Last year, the special dividend of £1.15 per share accounted for 47% of the total shareholder payout. If the builder holds its ordinary payout firm, the Persimmon dividend forecast would stand at £1.25 per share. That would be an 8.6% yield at today’s share price. That is well below 16%, but still attractive to me.
However, it is not clear that the ordinary dividend will be held firm. As part of the company’s new capital allocation policy, ordinary dividends “will be set at a level that is well covered by post-tax profits”. That policy will start with effect from the 2022 dividend, which is set to be announced next month.
That does not necessarily mean a cut to the ordinary dividend, though. Last year, for example, post-tax profits came in at £787m and the ordinary dividend cost the firm just under £400m. So, unless profits plummet, Persimmon could afford to maintain last year’s payout. Its new policy could even mean a rise is on the cards.
When considering the combined total of ordinary and special dividends, however, I am expecting the 2022 payout to represent a cut from the prior year.
Longer-term Persimmon dividend forecast
What about the coming five to ten years?
The new dividend policy is all about how Persimmon distributes surplus cash to shareholders. It does not change the company’s ability to generate such cash in the first place.
Historically the company has paid a lot of money out in dividends. Under the new policy, it expects to continue its past policy of distributing excess capital to shareholders from time to time, through a share buyback programme or special dividend. I expect that, in years of strong business performance, we could well see Persimmon pay special dividends once more.
With distributions dependent on being “well covered”, there could be more variation in Persimmon’s ordinary dividends than used to be the case. If earnings are low, the ordinary dividend could be cut or indeed cancelled altogether.
My move
For now, Persimmon remains in good shape and trades on a low price-to-earnings ratio of just 6.
The company has a strong brand, a business model that typically produces high profit margins and benefits from a market in which there is limited supply. All of those factors could help it profit in coming years, perhaps supporting meaty shareholder payouts.
But there is also the risk that declining house prices could eat into earnings. That could spell bad news for shareholder payouts. Although the Persimmon dividend forecast attracts me, I am waiting to see what happens to the housing market in coming months before making any move on the shares.
