This UK stock has crashed 10% today. Should I buy more?

I got the highest dividend paying UK stocks persimmon (LSE: PSN) last October and for a while I felt really happy.

At FTSE 100 housebuilder offers the highest yield in the index at almost 20% a year, although I was not deceived. Shareholder payouts are no longer sustainable. I understand. Investors know it too.

The builders on the ground shook

So when the board announced that the dividend would be reinstated, Persimmon’s share price did not collapse as some had hoped. But now I’m sick after the market’s bleak reaction to today’s results.

persimmon “Bring a very strong performance in 2022”, according to CEO Dean Finch. Total group revenue rose 6% to £3.8bn, with turnover up 2% to 14,868. The average sale price rose by 5% to £248,000, but everyone knows that profits, finishes and sales are all going south next year.

The company has been cutting costs to reduce cost inflation, but it has not been able to overcome the collapsing housing market, however difficult it is.

Persimmon shares are down 9.78% today as I write this, and are still sliding. Investors know the dividend will be cut, but by 74%? That hurts. The board had little choice, with net cash falling from £1.2bn to £851m as inventories increased, while free cash flow more than halved from £765m to £373m.

The Nationwide house price index now shows a 1.1% fall in February, the biggest annual fall since November 2012. UK property prices are now down 3.7% from their peak in August.

If the current level of sales is maintained, the full year completion could be down more than 40%. Persimmon has posted an underlying operating profit of £1bn, up from £966.7m. It won’t be done next year.

A buying opportunity, but not yet

I am neither shocked nor surprised. We all knew what was coming. I don’t regret buying persimmons, my personal holdings are still up 14.25%, even though they are falling now. I will definitely not sell, I buy and hold the stock for the long term. But should I take advantage of today’s sale and buy more?

I’m very tempted, although I expect house prices to drop even lower this year. Broker predictions range from a 7% decline (Lloyds) to 15% (Number). I have even seen talk of a 20% drop. In that scenario, Persimmon’s share price problems could get worse before they get better.

I think the long-term outlook for the UK property market is still positive. We have a huge housing shortage. The spike in mortgage rates following former Chancellor Kwasi Kwarteng’s mini budget debacle last year has now reversed. At some point, interest rates will peak and fall, and buyer sentiment will improve. Despite that, I wouldn’t buy more Persimmon shares today.

Thanks to the October purchase, I now have enough exposure to the housing market. Today’s dip isn’t big enough to make me want to fill my boots, even with a valuation of just 5.9 times earnings. I will keep a close eye on Persimmon’s progress. If things get really bad, then I will move.