Betting and gaming company William Hill (LSE: WMH) may not be among the most popular of income stocks. However, its 4.4% yield has considerable appeal and today’s trading statement shows that it’s making encouraging progress.
William Hill’s trading statement confirms that it’s on track to meet its guidance for operating profit to be at the top end of the range of £260m-£280m for the full year. Its online division has returned to growth, with UK Sportsbook amounts wagered up by 4% in the second half of the year following mobile Sportsbook enhancements earlier in the year.
Alongside this, William Hill has completed the rollout of 2,000 proprietary self-service betting terminals. Its organisational structure changes are also on track for implementation in 2017, while in the second half it has focused on improvements to its gaming and marketing functions. In fact, it has identified opportunities for £30m of operating efficiencies in 2017, with £15m of digital marketing spend already identified to drive faster digital net revenue growth.
In terms of its international performance, William Hill continues to record positive performance outside of the UK. It recorded double-digit wagering and net revenue growth in H2 in Australia, the US and Spain. This should help to diversify the business and lower the company’s risk profile. It also improves its income appeal, since it helps to makes it a more robust dividend payer.
In terms of its dividend coverage, William Hill’s shareholder payouts are currently covered 1.8 times by profit. This shows that there’s scope for dividends to rise at a faster pace than profit over the medium term. Furthermore, William Hill is forecast to increase its bottom line by 10% in the next financial year, which should have a positive impact on dividend payments over the medium term.
Alongside its more geographically diversified and improved business model, this shows that William Hill remains a sound income play. It offers a superior dividend outlook to sector peer Ladbrokes Coral (LSE: LCL), which currently yields 2.5% from a dividend covered 2.1 times by profit. This shows that while Ladbrokes Coral has the potential to increase dividends as the company integrates following the merger, William Hill offers a superior income outlook.
Clearly, Ladbrokes Coral has the potential to become a dominant player within the betting and gaming markets. The merger between the two companies has created a more financially sound and resilient business that may prove to have cost advantages over sector peers. However, with William Hill having a high yield, dividend growth potential and earnings growth prospects via its international businesses in particular, it remains an appealing income play.
Whether it’s the most underrated income stock in the world remains unclear but it certainly deserves a closer look. There are a number of 4%-plus yielding shares which are under the radar of many income-seeking investors. Nevertheless William Hill is underrated as an income play and could prove to be increasingly popular over the medium term as low interest rates plus high inflation become a reality.
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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.