Looking at the FTSE 100 this morning, advertising giant WPP (LSE: WPP) is the top performer. Its shares are currently up around 7% versus a rise of 0.9% for the index. This will be welcome news for WPP shareholders, myself included, as the stock has had an awful run over the last year, losing over a third of its value. So why have the shares bounced today? Let’s take a closer look.
Strategy for growth
The reason WPP shares have surged today is that the group released an update this morning that sets out a three-year plan of ‘radical evolution’ to deliver improved performance.
In an announcement entitled ‘WPP Presents Strategy for Growth’, the company advised it will be fundamentally positioning itself as a ‘creative transformation company’ that brings together creativity and expertise in technology and data and that, going forward, its offer will be much simpler. “What we hear from clients is very consistent: they want our creativity, and they want us to help them transform their business in a world reshaped by technology,” said CEO Mark Read.
To enable the business transformation, WPP will cut 2,500 jobs and incur cash costs of around £300m over the next three years. However, it expects this to generate annual savings of £275m by the end of 2021.
The other big news from WPP this morning is in relation to its dividend, with the group advising it intends to pay a final dividend of 37.3p per share this year – the same payout as last year. It also said it intends to maintain and prioritise a full-year dividend of 60p per share going forward, which is great news for income investors.
So what should we make of today’s announcement? And is the stock worth buying right now?
Adapting to changes
With the stock up 7% today, the market clearly likes this announcement, and so do I. The thing that impresses me most about today’s update is that WPP is showing it’s willing to adapt as the advertising world continues to change. In the business world, companies that fail to adapt can be crushed. Just look at Nokia, who missed the smartphone trend, or Kodak, who failed to adapt as cameras were replaced with camera phones. By transforming itself to better meet the needs of its clients, WPP is definitely heading in the right direction. And the group’s focus on technology is a smart move, in my opinion.
What I also like about today’s announcement is the dividend news, as this shows shareholders are a priority for the company. It could have chosen to reduce to its dividend to conserve cash, but instead, it’s chosen to maintain its 60p per share payout.
FTSE 100 bargain
Looking ahead, WPP’s transformation isn’t going to happen overnight. The company advised this morning that full-year revenue decline this year is likely to be around -0.5%, and that 2019 will be a year of investment in the business.
Yet with a 60p per share dividend on offer, investors buying now can pick up a 7% yield while they wait for the company to turn things around. With the stock trading on a P/E of just 7.9, I think WPP is a dividend stock to buy now and tuck away for a few years.
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Edward Sheldon owns shares in WPP. 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.