Prediction: in 12 months the Persimmon share price and dividend could turn £10,000 into…
Having crashed 57% since November 2020, the Persimmon (LSE:PSN) share price has been the second-worst performer on the FTSE 100 over the past five years. Post-pandemic interest rate hikes have choked off the demand for new houses and stubborn supply-chain inflation has eroded the groupâs margin.
However, with the cost of borrowing starting to come down, I think investors could consider adding the stock to their portfolios.
Green shoots of a recovery
Since the base rate reached a post-Covid high of 5.25% in August 2023, the Bank of England has made five cuts of 0.25% each.
More recently, four of the nine-person monetary policy committee voted for a reduction at Novemberâs meeting. This has raised expectations that a pre-Christmas cut will be announced on 18 December.
As expected, the 1.25% reduction in the base rate has resulted in a drop in mortgage rates, which in turn, has led to an increase in the demand for new loans. I think itâs significant that the actual rates charged on new loans are now at their lowest level since January 2023. Borrowing in September was at its highest since March, when there was a rush for new loans ahead of stamp duty changes.
Current (18 November) yield curves suggest the base rate could fall from 4% to 3.5% over the next six months or so.
If the market conditions do continue to improve, Persimmon could be one of the biggest beneficiaries. Its average selling price is cheaper than its rivals, which suggests itâs likely to see a faster increase in sales than its peers.
A bigger picture
But the groupâs not out of the woods just yet. Next weekâs Budget is likely to be a tax-raising one and could result in a further squeeze in incomes. Although the governmentâs trying to pursue a pro-growth agenda and encourage housebuilding through a series of planning reforms, the state of the nationâs finances means thereâs a risk that some of the anticipated benefits of these polices could be undone.
Despite this, analysts remain optimistic. They have an average (consensus) 12-month share price target of 1,480p, which is approximately 20% higher than todayâs price. In addition, they are expecting dividends of 62p a share. This is a far cry from the 235p it paid in 2022. But we live in different times now and itâs a reminder that there can never be any guarantees when it comes to payouts.
If these estimates are correct, it means a £10,000 investment could turn into £12,614 by November 2026. This is an overall return of 26%. Iâm sure most investors would be happy with that. For context, Microsoft‘s stock price has risen by ‘only’ 19% over the past year.
Final thoughts
Personally, I remain hopeful that the Persimmon share price will do better than this. After all, just over a year ago, the groupâs stock was changing hands for 36% more than it is today. This month, the housebuilder confirmed that it remains on track to deliver 11,000-11,500 completions this year. And despite its recent struggles, Persimmon remains debt free.
Thatâs why I think itâs one to consider although I acknowledge that itâs not the only business building momentum in the sector.
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James Beard has positions in Persimmon Plc. The Motley Fool UK has recommended Microsoft. 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.
