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Can this 6% dividend stock smash the Barratt share price?

William Hill (LSE: WMH) shares have lost more than 35% of their value so far in 2018, including a 6% slump on Tuesday on the back of the firm’s latest update.

In the year so far, to 23 October, the gaming company saw total net revenue rise by 4%, with expansion in the US doing exceptionally well. US revenues from existing operations climbed by 29% — and the firm’s gross win margin on new business reached 11.6%.

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The company now expects full-year operating profit of between £225m and £245m, which is lower than previously expected, partly due to the clampdown on fixed odds betting in the UK and the closure of a number of accounts in the fight against problem gambling and money laundering.

US expansion

But that’s surely eclipsed by future opportunities in the US which, in the words of chief executive Philip Bowcock, is based on “the emerging US sports betting opportunity following the Supreme Court’s decision to overturn PASPA in May.”

The Professional and Amateur Sports Protection Act of 1992 had effectively outlawed sports betting, and Mr Bowcock pointed out that William Hill is “the only company to be taking sports bets in the first five states to have regulated.” He added: “Our goal is to be in every state.”

Even with a 20% drop in EPS forecast for this year, we’re still looking at P/E multiples of only around ten. And dividend yields are predicted to exceed 6% by 2019.

I see a market looking at the short term here, and neglecting a long-term opportunity.

Property cash

I invested in a buy-to-let property many years ago, and I cautioned recently about my own experience and what I see as the kind of year-to-year pitfalls that potential new property investors might overlook.

Right now I’m fine with it, but over the past decade I’d have done a lot better with the cash in shares of our top housebuilders instead.

Over the decade I’ve had total returns of under 4% per year, but dividends from Barratt Developments (LSE: BDEV) shares would have wiped the floor with that and I’d be looking forward to a forecast 8.4% yield this year (including special dividends).

So why are people not snapping up Barratt shares?

After years of cracking growth, fears are growing of a slowdown in house prices, edged on by the gloom and despondency surrounding Brexit. But I’m just not seeing a market slump coming, not with our chronic housing shortage nowhere near solved.

Market shift

And even if London prices are cooling while other parts of the country pick up… well, I see that as a good thing. And it’s surely not going to stop Barratt Developments raking in the cash.

The budget should help too, extending the government’s Help to Buy scheme by another two years.

And while the doomsters might be expecting a crash, the City’s analysts aren’t, projecting a further 4% EPS growth for Barratt this year to drop the shares to a valuation of less than eight times forecast earnings.

To me, that’s pricing in far more downside than I can realistically see, and I still rate Barratt Developments as a top buy.

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Alan Oscroft has no position in any of the shares mentioned. 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.