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Right here’s a quiz query: what’s the highest-yielding inventory on the FTSE 100? Authorized & Common? Phoenix Group? Or perhaps it’s one of many tobacco giants? No, it’s none of these. The truth is, it’s WPP (LSE:WPP), the promoting and advertising and marketing company.
Based mostly on quantities paid over the previous 12 months, the inventory’s yielding a powerful 9.3%. Nevertheless, it was solely elevated to the highest spot after releasing a revenue warning on 9 July. Since then, its share value has fallen round 20%.
Originally of the week, it was yielding 7.5%. In February 2002, when its shares have been at their post-pandemic excessive, the yield was 3.2%. Nevertheless, its payout has remained unchanged for its final three monetary years.
This tells us that its yield has been inflated by a falling share value. Consequently, I believe it’s a case of purchaser beware. If WPP’s unable to reverse its decline, its dividend may quickly come below stress.
A brand new boss
The duty of bettering profitability lies with the group’s newly-appointed chief govt, Cindy Rose. She’s held senior positions with Microsoft and has been on the centre of its growth of synthetic intelligence (AI) options. In 2018, she mentioned: “Organisations who’re investing in AI are already considerably outperforming those that usually are not.”
Since 2019, Rose has been a director of WPP so I reckon she’s been influential in shaping its personal method to AI.
Certainly, the group says it makes use of the know-how to “ship sharper, better-informed methods and artistic concepts, sooner than ever earlier than”. As well as, “AI-powered insights” assist gasoline campaigns to “outperform”. In addition they allow it to create “hyper-personalised, scalable experiences that drive conversion”. Spectacular.
An existential menace?
However this can be a double-edged sword. AI’s making it simpler for others to duplicate the work of inventive businesses.
For instance, content material suppliers shall be accustomed to TikTok’s Symphony suite which supplies avatars and scripts to assist customers shortly create campaigns. Meta Platform’s creating its “infinite inventive” platform supposed to mechanically generate and optimise social media advertisements. Of most concern, Sam Altman, the boss of OpenAI, claims AI will quickly do 95% of the work at present achieved by advertising and marketing businesses.
Already, over two-thirds of UK promoting income goes to the tech giants. I concern the writing may very well be on the wall for the world’s marketeers.
A extra optimistic view
Nevertheless, we should keep in mind that WPP’s been in existence (in its current kind) since 1985. It’s survived loads of downturns earlier than.
It additionally has a wonderful popularity and works with among the largest firms on the planet. Analysis means that the trade may develop at a median annual price of 6.9% up till 2029. And regardless of this week’s woes, the group stays very worthwhile.
Remaining reflections
It may very well be that WPP’s blue-chip shoppers will proceed to depend on third events for his or her inventive output. However I think smaller ones could look to take the work ‘in-house’. In the event that they do, then earnings will come below stress and the dividend may very well be one of many first issues to be minimize. The group’s standing because the highest-yielding FTSE 100 share will then be misplaced.
To be trustworthy, no person is aware of how AI’s going to affect the trade over the following few years. And that’s an issue for me. Due to this fact, I don’t wish to make investments.
