If I’d invested £2,000 in Persimmon shares 5 years ago, here’s how much I’d have now

Investors in persimmon (LSE: PSN) shares have suffered in the past five years. Homebuilders’ volatile earnings record has worked with seesawing sentiment to produce some big swings for stocks.

But the dividend payout was pretty good during that period. So does the income from these shareholder payments save the day for the company’s shareholders? To find out, let’s look at the five-year total return posted by the stock.

A loss investment

Investors may have bought some shares five years ago at around 2.554p each and started higher. But today the shares changed hands for around 1,261p. It made a loss of 1,293p per share over the period.

However, shareholders will have collected dividends worth 925p per share over the past five years. So that can be added back to give a negative 368p net figure. And that works out as an overall loss on investment of around 14.4%.

Therefore, a £2,000 investment in Persimmon shares five years ago would now be worth about £1,710. Although the amount you can make will depend on the effect of transaction costs when buying and selling the shares.

Persimmon is a big yield

But dividends do not guarantee positive results. Even if they reduce their losses, investors will suffer during this period.

However, Persimmon’s large dividend yield over the past five years has not improved the company’s shareholders. And the reason seems to be a big cycle in the house building sector. Cyclicality in business can be a great deal for investors on the way up and take away just as quickly on the way back down.

And that is why I would question the wisdom of trying long-term investments in cyclical stocks. For me, time is important when it comes to cycles.

And I learned a lot about this from the legendary investor Peter Lynch. He achieved extraordinary investment success managing the Magellan Fidelity fund between 1977 and 1990. The two Lynch books I have read are One up on Wall Street and Beat the Street.

Meanwhile, on March 1, Persimmon posted its full-year results report for 2022. And chief executive Dean Finch spoke of caution. He described the current housing market as “indefinite”. And lower sales levels over the past five months mean 2023 is coming to an end “too low”.

City analysts have penciled in a plunge in earnings of around 36% for 2023. And it is not clear how much pain has been priced-in with the stock at the current level. But on a brighter note, the same analysts expect the dividend to increase by nearly 23% in 2024. And that puts the expected dividend yield at a bumper 7.7% today.