Is Persimmon’s 10 Per Cent Dividend Yield Sustainable?

  • Apr 16, 2019 BST
  • Team Kalkine
Is Persimmon’s 10 Per Cent Dividend Yield Sustainable?

Persimmon PLC (PSN) is a British leading housebuilder and designs, develops and builds residential houses, ranging from studio apartments to executive-style family homes. The company has 31 regional offices in the UK, and it trades under brands such as Charles Church, Persimmon Homes and Westbury Partnerships across England, Wales and Scotland.

Homebuilder Persimmon witnessed a steep fall in its share price last year, but the stock screening websites are populating its enormous dividend yield. The most important thing in case of Persimmon is that it does not categorise its dividend in an ordinary way. Instead, the company has classified its dividend as “special” not “ordinary”, which indicate that the company could stop whenever the board decide.

However, the business of Persimmon is cyclical in nature, so that a “special dividend” suits the nature of Persimmon’s highly cyclical business.

In Future, if the housebuilding sector sees some kind of downtrend, it's likely that the company will slash or stop its dividend payment altogether. If that is going to be the case, then its shares will fall too. So, based on the above assumption, we don't think Persimmons is pure play income investment at all, its business is cyclical before anything else.

At present, the housebuilder is experiencing a high dividend yield, primarily because of steep share price plunge from last year's high price level, which indicates they could witness problems in future to pay a high dividend to the shareholders.

Also, the business is exposed to many risks, ranging from uncertainties around Brexit, Economic slowdown, rising inflation, interest rate volatility and tumbling pound against major currencies.

Stock Performance – 1 Year

2-Years Daily Price Chart (as on April 16, 2019), before the market close. (Source: Thomson Reuters)

At the time of writing, (as on April 16, 2019, at 12:41 PM GMT), shares of Persimmon Plc were quoting at GBX 2,336.0 and added 22 points or 0.95% against its previous day close. In past two-years, shares have registered a high of GBX 2,890 and a low of GBX 1,861 and at the current market price as quoted in the price chart, shares were trading 19.16% below its two year's high price level and 25.5% above its two year’s low. Persimmon Plc’s 52w high is GBX 2,913 and 52w low is GBX 1,824.70.

Also, at the current market price, the stock is oscillating around its 200-days simple moving average price and trading 3.45% above its 30-day single moving average price. From the volume standpoint, stock's 5-days average volume traded on the LSE was 33.88% below its 30-day average volume traded on the LSE.

The outstanding market capitalisation of the company stood at £7.36 bn, and its dividend yield stood at 10.16% which is considerably higher than the industry as well as FTSE 100 index dividend yield.

However, the company has consistently maintained its EBITDA margin above 20% and Net margin above 15% since 2015, which is a robust fundamental indicator. In FY18, Persimmon's EBITDA margin stood at 29.4% against the industry median of 14.2% and Net Margin of 23.7% against the industry median of 8.8%.

With Bank of England reducing the interest rates to a historic low level, the spotlight is back on diverse investment opportunities. 

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