WPP's (LON:WPP) Dividend Is Being Reduced To £0.075

WPP plc (LON:WPP) is reducing its dividend to £0.075 on the 3rd of Novemberwhich is 50% less than last year's comparable payment of £0.15. The yield is still above the industry average at 10.0%.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. WPP's stock price has reduced by 33% in the last 3 months, which is not ideal for investors and can explain a sharp increase in the dividend yield.

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WPP's Payment Could Potentially Have Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. The last payment made up 90% of earnings, but cash flows were much higher. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

Over the next year, EPS is forecast to expand by 42.0%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 61% which would be quite comfortable going to take the dividend forward.

Check out our latest analysis for WPP

WPP Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2015, the annual payment back then was £0.382, compared to the most recent full-year payment of £0.394. Its dividends have grown at less than 1% per annum over this time frame. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.

WPP Might Find It Hard To Grow Its Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. It's encouraging to see that WPP has been growing its earnings per share at 51% a year over the past five years. EPS is growing rapidly, although the company is also paying out a large portion of its profits as dividends. If earnings keep growing, the dividend may be sustainable, but generally we'd prefer to see a fast growing company reinvest in further growth.

In Summary

Overall, while it's not great to see that the dividend has been cut, we think the company is now in a good position to make consistent payments going into the future. With a reasonable track record and good earnings coverage, the payments look sustainable. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 2 warning signs for WPP (1 is a bit concerning!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.