Recent stock market sell-offs means plenty of top-quality FTSE 100 shares are now trading at rock-bottom prices. This gives eagle-eyed investors like me a chance to nip in and grab a few choice bargains.
Persimmon (LSE: PSN) is one dirt-cheap FTSE 100 share I’m seriously considering buying today. I’m particularly attracted by its enormous dividend yields which sit just shy of double-digits.
More good news
Britain’s housebuilders are soaring on Tuesday following another excellent trading update from Barratt Developments (LSE: BDEV). In it the FTSE 100 firm said that private reservations have remained “strong” despite the end of the Stamp Duty holiday and fewer Help to Buy reservations.
Net private reservations were down 2.3% year-on-year between 1 July and 10 October, Barratt said. But this reflected strong pent-up demand in 2020 following Covid-19 lockdowns, as well as a rush of interest from Help to Buy buyers before changes to the purchase scheme came in last December. Comparing reservation rates with those of the same 2019 period is a better indication of trading. And net reservation rates were up an impressive 18.1% on this basis in the past couple of months.
9.2% dividend yields!
Barratt’s bright release has lifted share prices across the housebuilding sector. Yet many of these cyclical shares continue to trade on dirt-cheap earnings multiples. Take FTSE 100-quoted Persimmon. At the current price of £26.70 per share, the homebuilder trades on a forward price-to-earnings (P/E) ratio of just 10 times.
As I said earlier, I think Persimmon is particularly attractive because of its enormous dividend yields. A yield of 8.9% for 2021 makes it one of the best FTSE 100 dividend stocks to buy, in my opinion. And what’s more, the yield marches to 9.2% for 2022. Both readings smash the broader Footsie average of 3.5% to smithereens.
One of the best FTSE 100 value stocks
Persimmon has itself put out a terrific trading update of its own in recent weeks. In August it said that private sales rates in the first six months of 2021 were up 30% year-on-year. They were also up approximately 20% on the same 2019 period.
Furthermore, Persimmon reported total forward sales of £2.23bn as of June. This was up 9% from levels reported between January and June 2019. Sales at the FTSE 100 firm continue to be helped by interest rates than remain much lower than their historical average, giving a big boost to homebuyer affordability. The support of Help to Buy, and the benefit of an increasingly competitive mortgage market, are also helping to drive new-build demand in the UK.
The Bank of England could well raise interest rates to battle runaway inflation. But I don’t expect this to significantly hit Persimmon’s sales as rates will remain well below those historical norms. Instead I think the main threat to the company (and to BDEV) comes from raw materials shortages that could hit construction rates and push up costs.
Still, it’s my opinion that this danger is well reflected by the FTSE 100 firm’s low earnings multiple. I think Persimmon is one of the best value stocks for me to buy today, and particularly because of those enormous dividend yields.
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Royston Wild owns shares of Barratt Developments. The Motley Fool UK has no position in any of the shares mentioned. 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.
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