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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 possibly it’s one of many tobacco giants? No, it’s none of these. Actually, it’s WPP (LSE:WPP), the promoting and advertising and marketing company.
Primarily based 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 worth has fallen round 20%.
Originally of the week, it was yielding 7.5%. In February 2002, when its shares had 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 worth. In consequence, I feel it’s a case of purchaser beware. If WPP’s unable to reverse its decline, its dividend might quickly come below stress.
A brand new boss
The duty of enhancing profitability lies with the group’s newly-appointed chief government, 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 stated: “Organisations who’re investing in AI are already considerably outperforming those that will not be.”
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 expertise to “ship sharper, better-informed methods and inventive concepts, sooner than ever earlier than”. As well as, “AI-powered insights” assist gasoline campaigns to “outperform”. Additionally they allow it to create “hyper-personalised, scalable experiences that drive conversion”. Spectacular.
An existential menace?
However it is a double-edged sword. AI’s making it simpler for others to duplicate the work of artistic businesses.
For instance, content material suppliers shall be acquainted with TikTok’s Symphony suite which offers avatars and scripts to assist customers shortly create campaigns. Meta Platform’s creating its “infinite artistic” platform meant to robotically generate and optimise social media adverts. Of most concern, Sam Altman, the boss of OpenAI, claims AI will quickly do 95% of the work presently carried out 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 repute and works with a number of the largest firms on the planet. Analysis means that the trade might develop at a mean annual fee of 6.9% up till 2029. And regardless of this week’s woes, the group stays very worthwhile.
Last reflections
It may very well be that WPP’s blue-chip shoppers will proceed to depend on third events for his or her artistic 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 sincere, 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. Subsequently, I don’t wish to make investments.
