This year has been far from easy for investors. Markets have had the wind taken out of their sails as inflation has spiked globally, including near-10% rates in the UK. As such, I’m on the lookout for a FTSE 100 share with an inflation-beating dividend yield.
Investing during these periods can be difficult. However, by picking up a FTSE 100 constituent with a high yield I’m hoping to get a quality investment that can prevent, to some extent, my stagnant cash from losing value.
What I’d buy
With this, I’ve got my eye on Persimmon (LSE: PSN) – the highest yielder in the index.
The company is one of the largest housebuilders in the UK. With its headquarters in York, it has nationwide coverage through its regional operations. Persimmon built 14,551 homes last year, with an average selling price of just under £240,000.
The stock has suffered year-to-date. Its share price is down over 30% as building pressures have dampened economic outlooks and investor confidence. The last 12 months have seen the FTSE 100 share fall by 35%.
Why I’d buy
With this said, I’m not giving up on Persimmon just yet. Many stocks have seen their share prices dented this year, so it’s not alone in its struggles.
The major pull is its whopping 12.5% dividend yield, which is considerably better than the FTSE 100 average of 3%-4%. With inflation spiking to a new 40-year high of 9.4% in June for the UK, this also comfortably covers this.
The Bank of England has forecast rates to continue rising as we head toward the tail end of the year. Therefore, the passive income created from this investment seems like a smart way for me to put my cash to work. However, it’s worth noting that these payouts could be cancelled at any time by Persimmon, so there’s always that risk.
I’m also attracted to the stock by its low valuation. With a price-to-earnings ratio of around 7.6, this sits below the ‘value’ benchmark of 10.
I’m also bullish due to demand for homes in the UK. We’ve long faced a housing crisis that has yet to be solved. The government has ambitions to build 300,000 new homes per year, so Persimmon should benefit from this.
The group provided investors with a trading update last month, which revealed a slowdown in new homes delivered, along with revenues, as rising costs of raw materials have squeezed the firm’s margins.
Despite this, the release highlighted that current house price inflation is aiding in offsetting increased costs. And with the average selling price for the group rising 4% year on year, this should hopefully help Persimmon weather the storm.
So, regardless of these headwinds, I’d still buy Persimmon shares today. My main attraction is its meaty dividend yield, which will create a nice passive income stream. And with its low valuation, alongside a positive long-term outlook with increasing housing demand, I’d be happy to open a small position in the FTSE 100 share.