I know it’s still 2021. But we’ve had two very unusual years, with dividends slashed in 2020 and starting to come back this year. Hopefully, the FTSE 100 will be more stable next year, and I’m thinking about the stocks I’ll want to buy for my 2022 Stocks and Shares ISA.
WPP (LSE: WPP) paid a 3% dividend in 2020, even though the advertising and PR giant fell to a pandemic-led loss for the year. But unlike some companies, which pay big dividends even though they carry hefty debt, WPP ended 2020 with net debt of only £0.7bn.
The company embarked on a £248m share buyback programme in the first half, suggesting it saw its own shares as undervalued. Then, at the halfway stage in 2021, WPP raise its interim dividend by 25%, and announced the extension of its buybacks by a further £350m.
Chief executive Mark Read said: “We have returned to 2019 levels in 2021, a year ahead of our plan, with good momentum into 2022.”
There’s a risk the recovery won’t be sustainable at the current rate, and we could see some share price weakness after strong start to 2021. But I’m seeing enough cash generation and dividend growth potential to put WPP on my want list.
FTSE 100 struggles
The 2020 Lloyds Banking Group (LSE: LLOY) dividend yielded just 1.6%. That should improve in 2021, with the interim payment already exceeding last year’s total. It was held back by the PRA during the pandemic, along with the rest of the FTSE 100 financial sector. But at the halfway stage, the bank said it “has reintroduced a progressive and sustainable ordinary dividend policy.”
A CET1 ratio of 16.7% suggests there’s plenty of liquidity to support that new policy. The downside with Lloyds is that the share price has remained stubbornly weak. And every time I think there’s an improvement on the horizon, something comes along to give the sector a fresh kicking.
Long years of low interest rates aren’t helping the banks, and they’re certainly doing nothing to help the Lloyds share price. But there’s inflation on the horizon, so even that might change soon. And even if the share price remains low, I’ll be happy to keep taking my dividends.
Asset management
My third pick is perhaps a bit risky for an income investment. It’s FTSE 100 asset management group M&G (LSE: MNG), which is very much in a growth phase too. The company is expanding by acquisition, with the latest announced on 18 August. M&G is to to acquire Sandringham Financial Partners, a provider of independent financial advice.
First-half results released earlier in the month were all about growth too, and that does bring its dangers. It can be easy for an ambitious company to overstretch itself and come to grief. And with rapid expansion comes balance sheet risk too, and it’s easy to build up debt without really noticing it.
Still, on the current share price, we’re looking at a trailing dividend yield of 8.6% and P/E of under five. I’ll need to dig deeper, as that seems suspiciously cheap. But I’ve added M&G to my list of possible FTSE 100 dividend buys for 2022.
