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How Lloyds Banking Group plc and WPP plc ord 10p can help you grow richer!

Today I’ll be discussing the outlook for high street lender Lloyds Banking Group (LSE: LLOY), and multinational advertising agency WPP Group (LSE: WPP). Could these FTSE 100 giants really help you grow richer in 2016 and beyond?

Dividend hike

Shares in high street lender Lloyds Banking Group have fallen foul of poor investor sentiment in recent times with the shares losing a fifth of their value in just 12 months. So does this present a buying opportunity, or should we just accept that the banks will never recover? Well, it’s pointless looking to the investment banks for any clarity, as they’ve been offering opposing views in recent weeks. UBS and Berenberg have been sitting on opposite sides of the fence with buy and sell recommendations and target prices of 86p and 55p, respectively. Utter confusion. So here’s my view instead…

Lloyds’ shares have been cheap for some time, and are trading on just nine times forecast earnings for 2017. Maybe the market hasn’t forgiven the sector for the financial crisis, or maybe Mr Market is looking at the 11% earnings drop forecast for this year? I think the earnings hit this year is already in the price. Investors should be looking beyond 2016, to the expected dividend hike, and thus the bank’s increasing confidence about its earnings outlook.

Consensus forecasts suggest that management will lift the dividend payout this year to 4.38p per share, and again to 5.09p next year, leaving the shares supporting chunky yields of 6.7% and 7.8% for 2016 and 2017, respectively. So income chasers should be happy with the dividends, but I think there’s also room for substantial capital growth when the market finally welcomes the banks back into the fold and Lloyds earns a rerating.

Relentless growth

Advertising and public relations firm WPP Group recently reported a 10.7% rise in revenue for the first four months of 2016 to £4.18bn, or 8.8% on a constant currency basis, reflecting the weakness of the pound against the US dollar and euro. The group also reiterated its forecasts for the full year, expecting both like-for-like revenue and net sales growth to exceed 3%. The London-listed media group has been a consistent performer for a number of years, with revenues rising year-on-year since 2005.

WPP has also rewarded shareholders by raising its dividend payouts every year, leading to a fourfold increase over the past decade. The City is expecting the firm’s relentless growth to continue with analysts expecting underlying earnings to jump 10% this year to £1.35bn, with a further 8% improvement to £1.47bn predicted for the year to December 2017. The company is now targeting a 50% payout ratio, meaning sustainable well-covered dividend payouts from this year onwards, with dividend yields forecast at 3.5% and 3.8% over the next couple of years. WPP remains a long-term buy for steady growth and rising dividends.

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Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.