FTSE 100: Housebuilder Persimmon scraps dividend policy as sales slow

BATH, UNITED KINGDOM - APRIL 27:  A 'for sale' sign is displayed outside a new build house on a housing estate by developer and housebuilder Persimmon on April 27 2008 in Bath, England. Persimmon, the UK's largest housebuilder, has suddenly cancelled planned new developments after reporting a sudden decline in the housing market over the past few weeks claiming sales of new homes so far this year were down 24 percent as the credit crunch countinued to bite.  (Photo by Matt Cardy/Getty Images)
Persimmon said that successive rate hikes have created 'uncertainty' in the housing market. Photo: Matt Cardy/Getty (Matt Cardy via Getty Images)

Persimmon (PSN.L), one of the UK’s largest housebuilders, is replacing its dividend policy with a more “prudent” approach to returning cash, as the housing market contracts.

On Tuesday, the housebuilder announced its intention to introduce a new dividend policy in response to “increased uncertainty in the political and macroeconomic environment, alongside increased corporation tax and the residential property developer tax”.

In response to the stern macroeconomic headwinds slowing the housing market, Persimmon said it would "conclude the previous capital return programme, which was introduced in 2012" in order to ensure it has sufficient capital to continue its planned land acquisitions in the coming years.

The Persimmon share price fell 8% on the opening bell in London, to 1.217p

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The FTSE 100 (^FTSE) firm reported in its latest trading update that the rate of cancelled sales for its new builds rose to 28% from 21% in the last six weeks.

However, the London Stock Exchange (LSEG.L) said it was still on track to deliver its full-year 2022 volume target of between 14,500 to 15,000 homes, despite the increased risk from higher cancellations.

Persimmon CEO Dean Finch said: “Rising interest rates and broader economic uncertainty are clearly impacting mortgage lending and customer behaviour and this is reflected in our recent weekly sales rates and forward sales position."

Speaking about the recent dividend policy change by Persimmon AJ Bell investment director Russ Mould said: “The record of FTSE 100 firms that on paper were due to offer a double-digit percentage dividend yield is particularly bad when it actually comes to handing over the cash and Persimmon now looks set to join an inglorious list that also includes Vodafone, Shell, Centrica and, when they were part of the FTSE 100, Marks & Spencer, Evraz and IDS, or Royal Mail as it was then.”

“The housebuilder is refining its dividend policy and this looks set to end a run of 235p-per-share annual dividend payments, worth some £750 million a year, and equivalent to a dividend yield of nearly 19% at Monday night’s closing price."

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The York-based housebuilder said that successive rate hikes have created “uncertainty” in the housing market and the closure of the government's Help to Buy scheme for new applicants is making it more difficult for first-time buyers to access the property ladder.

Finch added: “Our highly experienced senior operational management team are drawing on their decades of detailed knowledge across many housing cycles to continue to rigorously assess every aspect of our business to ensure we are building quality homes for customers in the most cost-efficient manner.”

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