WPP (LON:WPP) Has Announced A Dividend Of £0.244

WPP plc's (LON:WPP) investors are due to receive a payment of £0.244 per share on 4th of July. The dividend yield will be 6.4% based on this payment which is still above the industry average.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

WPP's Future Dividend Projections Appear Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, WPP's dividend made up quite a large proportion of earnings but only 36% of free cash flows. 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.

Looking forward, earnings per share is forecast to rise by 48.2% over the next year. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 51% which brings it into quite a comfortable range.

Check out our latest analysis for WPP

WPP Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The annual payment during the last 10 years was £0.342 in 2015, and the most recent fiscal year payment was £0.394. This implies that the company grew its distributions at a yearly rate of about 1.4% over that duration. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

Dividend Growth Is Doubtful

The company's investors will be pleased to have been receiving dividend income for some time. Let's not jump to conclusions as things might not be as good as they appear on the surface. It's not great to see that WPP's earnings per share has fallen at approximately 5.7% per year over the past five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for WPP 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.