FTSE housebuilder Persimmon (LSE: PSN) stands out to me as a high‑yield opportunity for investors seeking reliable dividend income to consider.
Its balance sheet strength and surging earnings prospects support the sustainability of its payouts. And with the share price still depressed after the housing sector slump, the discount adds an extra layer of appeal.
So, how much could investors make from the shares?
How much in dividend income?
Persimmon’s current dividend yield is 5.4% — way higher than the FTSE 100’s present 3.1% average.
But dividends can change alongside share price movements and changes in annual payouts. In this case, analysts forecast its dividend yields will rise to 5.9% this year, 6.5% next year, and 7% in 2028.
So, a £20,000 holding in the stock could make £20,193 in dividends after 10 years and £142,330 after 30 years. This is based firstly on the forecast 6.5% dividend yield as an average. And secondly on the dividends being reinvested back into the stock to harness the turbocharging effect of ‘dividend compounding’.
The total value of the holding after 30 years could be £162,330, paying annual dividend income of £11,363 one day!
But what about the potential for share price gains too?
Profiting from the undervaluation?
One of the most widely used valuation tools is discounted cash flow (DCF). This estimates fair value by projecting future cash flows and discounting them back to the present. Greater uncertainty in those forecasts leads investors to demand higher returns, increasing the discount applied.
Analysts’ DCF models differ because they rely on different inputs. Using my own assumptions — including an 8.8% discount rate — Persimmon looks 58% undervalued at £11.11.
That suggests a fair value of £26.45, more than double where the shares trade today.
Because share prices tend to gravitate to their fair value over the long run, this could be an outstanding opportunity if those DCF assumptions hold good.
How does earnings growth look?
A risk for Persimmon is a further surge in the cost of living that prevents people from moving home. Another is any sustained rise in interest rates that would increase the cost of mortgages.
However, analysts forecast that Persimmon’s earnings will surge an average of 12.7% a year over the medium term, at minimum. And growth here supports gains in any firm’s share price and dividends over the long term.
These projections look well supported by its 2025 results, released on 10 March this year. Underlying operating profit soared 17% year on year to £472m. Meanwhile, revenue rose 17% to £3.75bn, highlighting its ability to grow volumes and pricing even in a still‑fragile housing market.
My investment view
I already own shares in Taylor Wimpey, so adding another housebuilder would unsettle the risk/reward balance of my portfolio.
But for investors without such a problem, I think Persimmon is a very intriguing prospect to research further. Its dividends are projected to rise strongly, as is its share price.
For me, other high-yield undervalued stocks in other sectors have recently caught my eye.
