Have £1,000 to invest? Persimmon is a FTSE 100 dividend stock I consider to be a bargain

The performance of the FTSE 100 has been thoroughly disappointing in recent months. The index has come under pressure from fears surrounding a global trade war, as well as the prospect of a rising US interest rate.

Housebuilders such as Persimmon (LSE: PSN) have also been affected by uncertainty surrounding the UK economy. The company’s share price is down 20% in less than five months, which suggests that investors are cautious about its prospects.

As such, it could offer a favourable risk/reward ratio for the long run. However, it’s not the only stock which could deliver FTSE 100-beating performance in future years.

Growth potential

One company which could also outperform the UK’s main index is gaming business William Hill(LSE: WMH). It announced a recommended cash offer on Wednesday of £242m for sector peer Mr Green. The company is an iGaming group which has operations in 13 countries through brands such as Redbet.

The growth acquisition would strengthen the enlarged company’s online capabilities and also provide it with a growing international presence. It would also provide access to an international hub through which growth could be driven. The deal is expected to be earnings accretive from the first full year of ownership, with synergy benefits of £6m due to be delivered.

The prospects for William Hill could improve following the acquisition. The gaming sector has seen a significant amount of consolidation in the last few years, and remains highly competitive. With growth in the international marketplace still relatively high, the deal could be a sound move.

Since the stock has a dividend yield of around 5.5% and trades on a price-to-earnings (P/E) ratio of around 12, it could have growth potential. Although its past performance has been mixed, positive earnings growth forecast for next year could boost its share price prospects.

Attractive industry

The prospects for the Persimmon share price seem to be relatively volatile at the present time. Investors appear to be concerned about the outlook for the UK economy, with consumer and business confidence being low ahead of Brexit. This trend could continue over the coming months, and so it would be unsurprising for the stock to experience a further fall in its valuation over the near term.

However, with demand for new homes being high and Persimmon set to benefit from government policies such as stamp duty relief and Help to Buy, the company’s operational performance may be sound. And with its shares trading on a P/E ratio of 10 despite earnings growth of 7% forecast in the current year, they may offer a wide margin of safety.

Furthermore, the housebuilder has accumulated a significant net cash position in recent years. I think this could provide it with a significant amount of financial flexibility so that if the housing market does experience a difficult period, it is able to overcome it and generate high returns in the long run.

You Really Could Make A Million

Of course, picking the right shares and the strategy to be successful in the stock market isn't easy. But you can get ahead of the herd by reading the Motley Fool's FREE guide, "10 Steps To Making A Million In The Market".

The Motley Fool's experts show how a seven-figure-sum stock portfolio is within the reach of many ordinary investors in this straightforward step-by-step guide. Simply click here for your free copy.

Peter Stephens owns shares of 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.

Read Full Story