The Reds, according to the Daily Mail are exploring a deal to bring the Hornets forward to the City Ground ahead of their Premier League return.
Dennis joined Watford for a reported fee of £3.6 million from Club Brugge last summer, but the Hornets are said to rate the Nigerian at £25 million this window.
That valuation comes after a decent individual showing for the 24-year-old in a poor Watford side that were relegated back to the Championship.
In 33 Premier League outings, the forward netted 10 times, as well as laying on six assists for his teammates.
The likes of Villareal, Everton and West Ham United have all been linked with a potential transfer for the Nigerian this summer so far, but as yet, no move has materialised.
If Dennis does depart Vicarage Road, it would not come as a surprise to many, given he was widely expected to have departed the club by this stage.
Interestingly, in an interview earlier this month, Hornets sporting director Cristiano Giaretta revealed that Dennis, along with Ismaila Sarr, the Hornets other star player, would both be available for selection in the season opener against Sheffield United were they still at the club by then.
Giaretta told the Watford Observer: “It’s highly likely that if they are here when the season starts, they will be available for first-team games if Rob chooses to select them.”
“They would like to leave and have been looking at potential moves, but they are not causing us any problems.
“They are not banging on our door to get away as soon as they can.
“They will stay at the club if the market doesn’t deliver something we think is acceptable, in the same way Sarr stayed with us the last time we were in the Championship.”