WPP plc (LON:WPP) has announced that its investors will receive a dividend payment of £0.15 per share on November 3rd. This payment will result in a dividend yield of 5.2% on the company’s stock, providing an attractive boost to shareholder returns.
Before this announcement, WPP was paying out 79% of earnings, but only 35% of free cash flows, leaving plenty of cash for reinvestment into the business. Over the next year, it is forecasted that earnings per share (EPS) will expand by 102.6%. If the dividend continues along recent trends, the payout ratio is estimated to be 38%, ensuring the sustainability of the dividend despite the currently high levels.
However, WPP’s dividend history shows that it has been cut at least once in the last 10 years. While the dividend has grown at a rate of 3.3% per annum over the past few years, the size of the previous cut would eliminate most of the growth, making it less attractive as an income investment.
Furthermore, WPP’s EPS has experienced a decline of around 20% per year over the past five years. Although earnings are predicted to rise in the next 12 months, caution is advised until this becomes a long-term trend.
In conclusion, while the consistent dividend payment from WPP is appreciated, there are concerns about its long-term sustainability. Although the company is generating sufficient cash at the moment, its track record raises doubts. Investors may find better income opportunities elsewhere.
Source: Simply Wall St