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When a top FTSE 100 income stock’s trading at levels last seen a dozen years ago, you know something’s gone a little bit awry.
That’s certainly the case with housebuilder Persimmon (LSE: PSN). Pretty much everything that could have gone wrong, has done. That’s not me being harsh on Persimmon. This is a sector-wide problem.
Since the Brexit vote in 2016, housebuilders have been hit by political uncertainty, higher construction costs, labour shortages, Covid, the cost-of-living crisis, soaring mortgage rates, the end of Help to Buy and the 2022 Mini-Budget fiasco.
FTSE 100 sector blowout
But there were also flashes of hope. The post-pandemic housing boom sent demand soaring, helped by temporary stamp duty cuts and cheap mortgages. Persimmon’s share price shot to 3,160p in May 2021. It’s all been downhill since.
Inflation surged, the cost-of-living crisis kicked in, the Bank of England started hiking rates and mortgage affordability collapsed. Result? Today, the Persimmon share price trades at 1,104p. That’s a fall of around 65%, peak to trough.
Latest results show that Persimmon’s fighting back. First-half 2026 completions rose 13% to 5,189, while revenue increased 15% to £1.73bn. Underlying operating profit climbed 10% to £189.1m. The shares are up 1.5% over the last year, which suggests the worst might just be over.
That’s encouraging, but the board’s warning about affordability constraints and build-cost pressures. Margins have slipped slightly, from 13.1% to 12.8%.
Is the dividend worth the risk?
Persimmon has two big attractions. First, the stock looks good value at a price-to-earnings ratio of 10.9. Second, the forward dividend yield is a juicy 5.5%.
Yet dividends have been chopped dramatically from the bumper payouts we saw in the pandemic. Persimmon paid 235p a share for 2021 and 235p for 2022, before resetting the payout to 80p for 2023 and 60p for 2024 and 2025.
Persimmon tempts, but I would still approach any stock in this sector with extreme caution right now. I’m worried about what happens next.
With oil back above $100 a barrel as the Iran war drives inflation higher, markets are now pricing in up to four Bank of England (BOE) rate hikes by mid-2027. This would hammer both the UK economy and property affordability. BoE governor Andrew Bailey says further increases aren’t inevitable, but mortgage rates are rising anyway.
Mortgage rates worry
On Monday (7 September), Barclays, Santander, Skipton, and TSB all announced mortgage rate hikes. That’s on top of recent hikes from HSBC and NatWest.
At some point, inflation should ease and the sector will recover. When it does, stocks like Persimmon will spearhead the recovery. I just don’t think we’re there yet. And that day keeps getting put off.
Brave, long-sighted value investors might consider Persimmon shares today, but I’m not at that point yet. I can see less troubled FTSE 100 dividend stocks to consider, and some have even higher yields than this one. I will target them instead.
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Harvey Jones does not hold any positions in the companies mentioned.
This story originally appeared on Motley Fool
