Housebuilder defies Covid-19 and reinstates dividend

Summer property surge boosts cashflow, but the long-term effects of the second lockdown remain uncertain.

Persimmon (LSE:PSN) is playing the hand which it has been dealt prudently and profitably.

Operationally, the current lockdown has had a limited impact on the company, with sales offices and manufacturing facilities remaining open, as opposed to the March version where sites ground to a halt. 

In addition, returning demand meant that during the summer the company was able to make hay while the sun shone. 

Private weekly sales were up by 38% year-on-year, with the current outlook equally promising. Persimmon has forward sales of £1.4 billion, 43% ahead of last year, with the current crop of housing fully sold up.

The summer surge, partially driven by some pent-up demand, has resulted in a strengthening of the company’s financial position, with net cash of £960 million comparing to £829 million at the half-year results. 

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The £300 million access to credit remains undrawn but provides a further buffer if required, while the company has not and does not intend to draw on any Government assistance.

As such, Persimmon has been able effectively to reinstate the previously suspended final dividend of 110p, according to its Q3 results today.

At the half-year stage it announced a return to the payment of a dividend of 40p, and today’s announcement that a further 70p will be paid restores the balance. 

Apart from being a sign of management confidence in prospects for the rest of the year, it also implies a yield of around 4%, which reflects a promising return to normality for the income-starved investor across an increasing number of sectors.

Allied to the ongoing tailwinds of mortgage availability, a general housing shortage and historically low interest rates, in normal times the company would see a clear pathway ahead.

However, the effects of the second lockdown cannot yet be quantified, either in terms of unemployment or the propensity of consumers to undertake one of the biggest financial decisions of their lives. 

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In addition, depending on the outcome of the UK’s Brexit negotiations with the EU, there could be other implications for the economy as a whole. In Persimmon’s case these include disruption to its supply chain.

Even so, the share price has also improved considerably, latterly due to the strong mark-up of prices across the board yesterday. 

Having jumped by 80% since the March low, the shares now stand up by 3.5% in the year to date. 

Over the last 12 months, the price has considerably outperformed the wider index, with a rise of 18% comparing to a decline of 16% for the FTSE 100.

Notwithstanding the potential difficulties of the coming months, the company is well positioned and the market consensus of the shares as a strong ‘buy’ reflects the high regard in which the company is generally held by investors.