If I’d invested £500 in Persimmon shares 3 years ago, here’s how much I’d have now!

persimmon Shares (LSE:PSN) have been part of my portfolio for some time. And, of course, I’ve been disappointed with the company’s performance in recent months.

Obviously, the industry has not been conducive to growth with rising interest rates. But I’m also concerned that the company has not kept its promise of fire safety.

But let’s consider how successful the three-year investment has been, and what the future holds for Persimmon.

returned disappointed

If I had invested £500 in Persimmon shares three years ago, today I would have around £240, plus dividends. That’s because the stock is now down 52% over that period. It is worth noting that most of these losses have occurred in the past 12 months. That’s down 39% in a year.

However, Persimmon’s large dividend will make up for some of the losses. The housebuilder pays 345p in 2020 and 235p in 2021. In 2022, the dividend yield reaches 20% as the share price collapses – it has also started the year as the biggest dividend payer in FTSE 100.

A challenge to overcome

The housing sector faces several challenges in 2023 – most of which were at the end of last year. These include rising interest rates, which have had a negative impact on demand for new homes, the end of help-to-buy schemes, and decade-high cost inflation.

There are other issues as well, and this is what angers me as a shareholder. By spring 2022, Persimmon said the fire safety pledge – the cost of re-sealing homes deemed unsafe after the Grenfell Tower disaster – would generate £75m. However, just six months later, that estimate has risen to £350m – roughly 40% of pre-tax profits in 2021/2022.

Cut dividends

This is sure to be a tough year for Persimmon and his friends. In its January update, the company highlighted that forward sales had fallen to £500m, from £1.1bn a year ago, representing a 54% drop.

Amidst this challenging environment, Persimmon said it will reduce its dividend – its 2022 dividend per share will be announced in March. This is perhaps not surprising given that an 18% dividend yield – as at the time the cut was announced – is clearly unsustainable.

But in the current environment, as a shareholder, I like the dividend cut. I’d rather see a company make a wise decision than reward shareholders when they can’t pay.

It should also be noted that Persimmon has a positive cash position which will help in these challenging times. The company had £860m in cash at December 31, down from £1.25bn a year ago. I think, as mentioned in the report, that the promise of fire safety played a role in reducing cash reserves.

So should I buy this stock? Yes, I used to own Persimmon stock, but now I don’t buy any more. I am worried that there will be more downward pressure before things get better. However, I am willing to hold on to what I want.