The Persimmon (LSE: PSN) share price has started falling again. They’re now down 15% since their recent peak at the start of May.
I wonder if the latest slide is anything to do with a warning from CS Venkatakrishnan, CEO of Barclays. Venkat, as he’s known, spoke of a huge income shock when mortgage borrowers reach the end of their fixed-term deals.
The year-on-year inflation rate fell to 8.7% in April, but analysts think the Bank of England will still raise rates above 5% before they start to fall.
The contrarian
It’s not a good time to be a borrower looking for a mortgage, and perhaps a tough time to be building homes for sale.
But does that mean a bad time to buy housebuilder shares for the long term? I say no, its just the opposite.
I want to offer a quote from Sir John Templeton, one of the 20th century’s most successful investors:
People are always asking me where is the outlook good, but that’s the wrong question. The right question is: Where is the outlook the most miserable?
Writing in Forbes, 1995
Best time to buy?
Does worst time to borrow, worst time to sell houses, means the best time to buy housebuilder shares? I think so.
I mean, the UK faces a chronic housing shortage. And that will surely outlast the current economic squeeze and way past these days of high inflation and high interest rates.
So when a profitable builder’s stock has fallen more than 50% in the past five years, I’d buy. In fact, I already bought some Persimmon shares, and I plan to buy more.
It’s the dividends
I hold Persimmon shares for the dividend above all else. And that’s where I see the biggest short-term risk. The forecast dividend yield for 2023 stands at about 5.2%. City folk still think it will rise in the next two years, but that might not happen.
Some sources have it in double digits right now. But that’s based on past years’ special dividends when the firm had surplus capital to return. So I’m ignoring that, but anything over 5% in tough times like these still looks good to me.
There’s also a risk that the share price could fall further. Did I say risk? Sorry, I mean opportunity.
The year so far
So far, the year is going as expected, according to a Q1 update.
Chief executive Dean Finch said: “If sales rates continue at the levels seen year to date, we would expect full year 2023 volumes to be toward the top end of the previously indicated range of 8,000 to 9,000 completions.“
He also spoke of “an excellent pipeline of new land opportunities to support growth in 2024.”
Persimmon is buying cheap land again, just as it did in the last property downturn.
Buy or sell?
So we have profitable company with a strong balance sheet, hitting a short-term slowdown in a market with excess long-term demand. And the Persimmon share price has slumped as a result. Buy or sell? It seems clear to me. I’d buy.
The post Just how much lower can the Persimmon share price go? appeared first on The Motley Fool UK.
Should you invest £1,000 in Persimmon right now?
When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Persimmon made the list?
See the 6 stocks
setButtonColorDefaults(“#5FA85D”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#43A24A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#FFFFFF”, ‘color’, ‘#FFFFFF’);
})()
More reading
3 wonderful value stocks for bargain-hungry investors!
6 shares that Fools have been buying!
Is the Persimmon share price heading back to £30?
Best British dividend stocks to buy in May
Are high-yield FTSE 100 housebuilder stocks too cheap to ignore?
Alan Oscroft has positions in Persimmon Plc. The Motley Fool UK has recommended Barclays Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.