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This whooping 8% FTSE 100 dividend yield is sizzling

A person holding onto a fan of twenty pound notes

Looking at data from the website dividenddata on 19 December, I counted 12 FTSE 100 dividend yields that are in excess of 6%. Miners, as well as tobacco, make up a decent proportion of this, neither of which I want in my portfolio in any meaningful way.

Among the highest yielding FTSE 100 companies, the one I most like the look of is Persimmon (LSE: PSN). I’m laying my cards out on the table here, so I’ll tell you that I’ve rebought Persimmon for my Stocks & Shares ISA. I like the company.

A top FTSE 100 dividend yield

While the Persimmon’s record is far from unblemished (there has been, for example, the well publicised corporate pay and build quality issues), it has tended to make a good investment. The share price was 1,765p five years ago. At the time of writing, the share price was 2,746p. That’s an increase of 56%.

Besides this growth, there’s the dividend yield, which stands at around 8.6% at the time of writing. That’s way above the average for the FTSE 100 and makes it one of the highest yielding shares on the UK market.

Reasons to add Persimmon

From my perspective, there are three key reasons to invest in Persimmon, besides the historic share price growth and current whopping dividend yield.

Persimmon is known for sector-leading margins. This will help insulate the company against inflation better than competitors with lower margins.

In its November update, Persimmon revealed it had added 16,200 new plots of land to its burgeoning land bank. This means it’ll have plenty of ground on which to build for years to come. It’s also a reflection that management is confident enough to spend money and sees future demand for new housing.

From my point of view, I think the group is run with shareholders in mind. Evidence of this comes from the cash and balance sheet strength of the housebuilding group, which is also testament to the business model. Persimmon had a cash balance of around £895m at 31 October 2021. That’s a huge pot from which to buy more land, build houses, and pay investors a growing dividend.

Could the share price fall?

Housebuilders are potentially risky businesses. The Persimmon share price could fall, especially if investors fret about rising interest rates and the implications that has for mortgage demand. The share price is tied to the UK economy as Persimmon is a UK business, so it’s less geographically diverse than most FTSE 100 businesses.

A top sizzlingly share? 

While there is, of course, the potential for the Persimmon share price to fall, I think the builder’s dividend yield is very impressive and has the capacity to sizzle even higher over the coming years. For me, Persimmon’s yield, growth potential, and prudent management all combine to make it a top investment that I’ll likely keep adding to through 2022.

The post This whooping 8% FTSE 100 dividend yield is sizzling appeared first on The Motley Fool UK.

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Andy Ross owns shares in Persimmon. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.