The Motley Fool

One FTSE 100 high-yield stock I’d buy and one I’d sell

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Shares of global advertising behemoth WPP (LSE: WPP) hit a new multi-year low yesterday ahead of a Q3 trading update today. The update sent the shares lower still early this morning but they’ve recovered to 1,325p, as I’m writing, over 2% up on yesterday’s close.

A credible thesis

The FTSE 100 group reported a continuation of a softening trend in quarterly like-for-like revenues. Following on from a Q1 increase of 0.2% and a Q2 contraction of 0.8%, the company said it saw a 2% decline in Q3, with particular weakness in the large North American market.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

WPP presented a credible thesis that a shift to cost reduction and zero-based budgeting among many clients has produced one-time reductions in marketing spend, which will be increasingly difficult to repeat. Indeed, WPP noted that many are already talking about increasing spend again as volume growth has been reduced. However, it said that should the softening of marketing investment persist in 2018, the Winter Olympics, FIFA World Cup and US mid-term Congressional elections might well counter it.

For the longer term, the company reiterated its target of “annual headline diluted EPS growth of 10% to 15% p.a. delivered through revenue growth, margin expansion, acquisitions and share buybacks.”

Set for rising dividends

At the current depressed share price, WPP’s 12-month forward price-to-earnings (P/E) ratio is just 10.4, which is historically low for the company, while a prospective dividend yield of 4.8% (covered a healthy two times by forecast earnings) is as high as I can ever remember it being. Even if WPP were to fall somewhat short of its targeted 10% to 15% annual EPS growth, it could still support the delivery of very handsome dividend increases on that high starting yield of 4.8%.

A dividend in the doldrums

I’m less enamoured of fellow high-yielding Footsie stock Marks & Spencer (LSE: MKS). For its last financial year to 1 April, the company maintained its dividend at the same 18.7p level as the previous year, with coverage by EPS falling to 1.6 from 1.9 after a 13% earnings drop. At a current share price of 347p, this gives a yield of 5.4%.

However, with another double-digit fall in EPS forecast for the current year, some City analysts are now predicting a dividend cut. This shows up in a consensus forecast payout of 18.1p. The consensus is made up of analysts expecting the dividend to be maintained at 18.7p and those expecting a cut much deeper than 18.1p.

M&S has cut its dividend twice so far since the turn of the millennium, once by 37.5% and once by 33.3%. On both occasions — but under different chief executives — the company justified the dividend cut on the basis of the need to invest in a transformation plan to put the business on a path to sustainable long-term growth and shareholder returns.

It seems to be a perennial state for M&S. Yet another chief executive is currently embarking on yet another transformation plan. Due to the company’s serial failure to deliver sustainable returns for investors, I rate the stock a ‘sell’.

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story.

In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

G A Chester has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.