Lower prices mean higher yields when it comes to dividend stocks. And right now, there are some shares where big discounts mean there are yields of up to 10% on offer.
Buying something just because it’s cheaper than it was isn’t always a good idea. So are these high yields huge opportunities, or will they lead to buyer’s regret?
WPP
So far this year, WPP (LSE:WPP) has been the biggest faller in the FTSE 100. But the result of a 64% decline in the stock since the start of January is a 10.5% dividend yield.
The firm expects revenues and profits for 2025 to be below the previous year. That’s not a good thing, but the reasons for it are worth looking at more closely.
In the short term, the challenge is that customers have been reducing marketing budgets in general. WPP can’t directly do anything about this, but I think it should recover over time.
But the bigger challenge for the firm is the shift towards social media and artificial intelligence (AI). Put simply, it means there’s just less for marketing agencies to do.
This looks like a more durable issue for WPP. The firm is investing in its own (AI) platform, but lower barriers to entry mean there’s a real question as to its long-term pricing power.
As a result, I’m wary about the company’s ability to maintain its dividend. And I think there are more attractive opportunities to research elsewhere at the moment.
Alexandria Real Estate
Lower biotech funding in the US has seen Alexandria Real Estate Equities (NYSE:ARE) shares fall 45% since the start of the year. But I think this might be an overreaction, making it worth considering.
The firm is a US-listed real estate investment trust that owns a portfolio of laboratories. And while weaker demand has led to higher vacancies and lower rents, it’s not all doom and gloom.
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Forecasts for full-year profits have fallen, but the firm expects to make $2.16 per share in the fourth quarter. That’s well above the $1.32 dividend the company pays out.
The trend is the wrong way for investors, but the firm is looking to divest some of its weaker sites to strengthen its financial position. And there are also positive signs for the longer term.
Pfizer has recently committed to heavy investment in US manufacturing and this might drive demand for research space as a side effect. And other firms might well do the same.
The falling share price means there’s a dividend yield of almost 10%. There’s always risk with high yields, but investors should think about whether the market might be overreacting here.
Black Friday sales
In the stock market, we don’t have to wait for Black Friday – there are sales all year round. But as with shopping elsewhere, we shouldn’t buy something just because it’s discounted.
When a stock is trading with a 10% dividend yield – especially if it’s part of a major index – there’s always a reason why. Investors are generally worried about something.
That doesn’t, however, mean they’re right. I think they might be a bit too pessimistic about Alexandria Real Estate and its future prospects, but I also have my eye on other opportunities.
