To say that housebuilder Persimmon‘s (LSE: PSN) share price has been in the doldrums for a while now is putting it mildly. In fact, it’s down 42% in five years. While I’ve been fortunate enough to invest during — rather than before — this downturn, I’m still to see any kind of real return.
So, why am I considering adding to my position? Let me explain.
Profit beat!
Like many holders, I welcomed last week’s full-year numbers from the York-based business with open arms. And this wasn’t just because they helped to distract my attention from the sell-off in the wider market.
CEO Dean Finch and co reported a 10% rise to annual underlying pre-tax profit to just over £395m in 2024. This comfortably beat the consensus among analysts of £380m.
What’s behind this good form? Well, it could be the result of inflation coming down to earth and mortgage rates becoming more attractive. The end to a temporary reduction in stamp duty likely prompted at least some buyers to get their skates on too.
The question, of course, is whether this marks a turning point for the Persimmon share price. No one knows the answer for sure. So, let’s consider both sides.
Another false dawn
First, we’ve seen a rebound in inflation. True, this hasn’t been massive. But it has pushed the Bank of England to warn that the pace of interest rate cuts is likely to be slower going forward. This latest development has consequences for affordability and could put off some potential buyers. This includes those looking for their first property, who Persimmon targets more than some of its rivals do.
Investors also need to be aware that the company, like many other large UK businesses, faces additional National Insurance contributions from April. The proposed Buildings Safety Levy could reduce the amount of money it has available for buying land as well.
Throw in the “ongoing macroeconomic and geopolitical uncertainties” mentioned in the results announcement and it’s quite possible that Persimmon will continue to lag the FTSE 100 for the rest of 2025.
Ready to recover
On the other hand, there’s no sign that last year’s trading momentum has slowed just yet. Indeed, the sales rate was 14% higher in the first nine weeks of 2025 than over the same period in 2024.
The company also believes it will build between 11,000 and 11,500 homes this year. The higher of those two numbers would amount to an increase of almost 8% on last year. Cost growth is expected to be lower too.
Longer term, Persimmon’s status as one of the UK’s biggest builders should mean it plays a key role in meeting demand for new homes. And the current government does seem very supportive of this, even if the goal of building 1.5m properties in just five years may prove too ambitious.
Last, there’s the dividend stream to think about. Even though the total payout was slashed back in 2022, the share depreciation since means the forecast yield currently comes in at a very attractive 5.4%. For comparison, the average yield in the FTSE 100 is around 3.5%.
While never guaranteed, having that passive income hit my account should keep me patient until the housing market truly revives.
This post was originally published on Motley Fool
