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I’m always on the hunt for an ultra high-yielding FTSE 100 stock or two. I’ve added plenty to my portfolio lately, including M&G and Phoenix Group Holdings, both yielding more than 10% at the time.
They’ve done well too. Their share prices are up 22% and 17%, respectively, over 12 months. Throw in those bumper dividends, and my total one-year return is around 30% on both. I’m happy with that.
Many of my recent buys have come from the financial sector, which looked dirt cheap with price-to-earnings (P/E) ratios of six or seven. That value is now starting to show through.
Now another stock has caught my attention, in another sector. Media and advertising giant WPP (LSE: WPP) currently offers the single highest yield on the FTSE 100 at 9.36%, and it’s trading on a low P/E of 8.6. Should I buy in?
I love a good recovery story but this one has a massive task ahead of it.
A share under siege
The advertising giant has struggled since driving force Martin Sorrell departed in 2018. It’s been battling to retain major clients, simplify its sprawling structure after years of acquisitions and catch up with digital-first rivals.
It’s already lost its crown as the world’s biggest ad firm to France’s Publicis. It faces further pressure from the $13.25bn merger of US rivals Omnicom and Interpublic.
We can now add artificial intelligence to the headaches list. Outgoing CEO Mark Read admitted that AI is “totally disrupting our business”. That doesn’t really inspire long-term confidence.
While WPP was an early adopter of the tech, the threat is existential. Meta’s automated ad tools and TikTok’s campaign-builder software now let companies run slick campaigns with minimal outside help.
Sam Altman, boss of OpenAI, reckons AI will soon do 95% of the work currently handled by marketing agencies. If he’s even close to right, WPP could be fighting for its future.
Numbers don’t lie
On 9 July, WPP issued a profit warning. It now expects organic revenue less pass-through costs to fall by 3% to 5%, with operating margins also declining. That compares to previous guidance of flat growth and margins.
Second-quarter sales disappointed as clients slashed ad budgets. Redundancy costs are also mounting. The shares plunged 13% on the day. Over 12 months, they’re down 42%.
The 9.36% yield is only that high because the share price collapsed. A week ago, it was 7.5%. That’s a red flag.
All hopes now rest on incoming CEO Cindy Rose, who starts in September. Her CV is impressive, and her tech background helped her land the challenging role. But this won’t be an easy turnaround.
WPP has warned that the tough trading is likely to persist. As AI usage spreads, this could snowball. The WPP dividend has been frozen at 39.4p per share since 2022. A cut is surely coming.
Not worth the risk
WPP is still profitable, has strong industry roots and if its new boss drives through a turnaround it could be a lucrative pick. But when the fundamentals are shifting this fast, I’d rather steer clear. My biggest investment mistakes have involved buying too soon after a profit warning, and getting hit by further shocks. No matter how tempting the yield looks today, this is one FTSE 100 high-yielder I’m going to avoid.
