Persimmon this week backed up its bullish view of the housing market by increasing its full-year dividend 50%, outstripping City expectations

The UK’s largest volume housebuilder increased its dividend to 27.5p after it made a better-than-expected start to 2005. The firm secured £1bn of forward orders.

Persimmon’s annual results for the year to 31 December 2004 further added to optimism about the UK housing market after Wimpey kicked off the reporting season last week by revealing a 19% increase in its pre-tax profit to £451m.

The City had feared a sharper downturn in the market after visitor levels and sales slowed in the last eight months of 2004.

John White, group chief executive, said record growth had been achieved “despite a year when the industry experienced a range of increasing pressures and almost all aspects of our business faced real challenges”.

A company spokesperson denied that Persimmon was about to make an acquisition. There has been months of speculation among market watchers that a purchase was imminent.

With a market capitalisation of £2.3bn, a sizeable acquisition would catapult Persimmon into the FTSE-100. However, Mike Farley, head of the southern division, said achieving FTSE-100 status was not a priority.

“It would be nice, but it is not a driver. We are very focused on organic growth at the moment and we don’t have to do a deal,” he said. Shares dropped 2.8% to 777p when results were announced on Monday.

White said Persimmon’s building costs had increased last year because of labour cost pressures, but that the situation had improved in the second half of the year because of the slowdown in the UK market.

Material prices were affected by steel and fuel cost increases, but Farley said Persimmon was able to minimise these because the size of the company and its long-standing relationships with suppliers were effective bargaining tools.

Persimmon sold houses from 15% more sites in 2004 than in 2003. Its operating margin rose to 23%, up from 20% in 2003, as turnover rose 13% to £2.13bn. It sold 12,360 more homes than the previous year, up 1.6%, at an average selling price of £172,431, up 11%.