The WPP share price dips as profits fall. Here’s why it could be a top dividend buy

I’m starting to think the WPP share price undervalues the stock, especially if the long-term dividend outlook comes good.

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The WPP (LSE: WPP) share price is way down from its heights of 2017.

And, even though it was picking up a bit in 2024, it turned tail again on 22 February.

The market didn’t seem to like the firm’s FY 2023 results, and the shares lost 3% in morning trading.

Long-term value?

I’ve rated WPP highly in the past. But I let it drop off my radar in the past few years.

Its advertising, PR, and corporate communications business had been going off the boil a bit before the Covid crisis.

And there have been so many other top FTSE 100 buys in recent years, I just can’t keep up with them. But I’m looking at the stock again in light of this latest update.

And I see decent performance in the past few years, which suggests there’s a robust business and a good safety margin here.

Headline figures

There was a big difference between the 2023 reported and headline figures. And that can make it harder to get our heads round a set of results.

As reported, profit before tax crashed 70%, with diluted earnings per share (EPS) down 84%. On headline measures, though, we saw just a 4.8% dip in both profit and EPS.

Total revenue rose 2.9%, with like-for-like up 3.2%. With the tail-end of recession still with us, I think that could bode well for a few years of better profits now.

I see other upbeat signs too, one of which is the dividend.

Progressive dividends

WPP maintained its dividend at 39.4p, for a yield of 5% on the previous close. It’s about 2.4 times covered by that headline EPS figure.

It’s not close to being covered by reported EPS, though that apparently “includes the impact of accelerated amortisation of previously indefinite life brands and impairment of leases related to the 2023 property review“. So now we know.

I do worry a bit when I hear a company talking about artificial intelligence (AI). And CEO Mark Read spoke of “our strategy to capture the opportunities of AI, data and technology…“.

Still, I see no AI bandwagon bubble here. And WPP’s business is surely one that could benefit from AI developments.

Outlook

The firm’s outlook for 2024 doesn’t show much change from 2023. I guess that might be why the market was less than enthusiastic on the day.

But broker forecasts show steady rises in earnings and dividends in the next few years. And they suggest strong cover by earnings too.

We’re looking at a forecast price-to-earnings ratio of 11, dropping to 8.5. The City expects a dividend yield of 5.2% by 2025 too. And I suspect that might be revised upwards after the 2023 dividend came in a little higher than expected.

Long-term buy?

I see plenty of risk at what looks like a turnaround point, as WPP’s market is still far from stable. The lack of a more positive outlook for this year could hold the WPP share price back too.

But I do think this could be a nice long-term dividend buy. I’ll have my eyes peeled to see how 2024 goes.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft 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.

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