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I’d buy and hold this 7%-yielding FTSE 100 dividend stock for the next 10 years

2018 has been an absolute nightmare for WPP (LSE: WPP). Its share price has collapsed by more than a third in the year to date, and it’s quite possible it could experience more pressure in the next 12 months.

I’ve long argued, though, that the FTSE 100 company’s long-term outlook remains robust, and my belief has been strengthened by recently-released details on its reinvigorated growth strategy. Judging by the positive market reception to Wednesday’s update, it’s also quite possible appetite for the stock could be about to spring higher.

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It may be seriously worth considering piling into the stock today, particularly so when you consider its dirt-cheap valuation. It carries a forward P/E ratio of 8.1 times, well inside the bargain-basement territory of 10 times and below.

Sorrell’s shadow

The resignation of a figure as critical as Martin Sorrell, whose three-decade tenure at the top of WPP turned it into the advertising colossus of today, would cause shockwaves even for firms with the deepest of talent pools.

Even amid accusations that he was something of a dinosaur in a digital age — claims that some would say are manifest in the Footsie firm’s disappointing trading performances of late — there’s still few in the industry with his encyclopedic knowledge and influence.

Indeed, many fear the disruption to WPP’s business that Sorrell and his new enterprise S4 Capital will bring. Just last week, S4 snapped up US-based programmatic marketing services MightyHive in a $150m deal to boost its position in the fast-growing digital ad market. The former chief’s big appetite for M&A shows no signs of dulling, and this could prove a big problem for his former agency in the years ahead.

Looking up?

Years of acquisition activity had left WPP a hulking, hard-to-manoeuvre and somewhat unfocussed beast, but new chief executive Mark Read has promised a shake up. According to this week’s strategy update, it’s to become “a simpler, improved offer designed to capture the opportunities of a changing marketplace” with a refined focus on creativity and technology, and with “a streamlined structure built around the needs of clients.” 

The strategy aims to create organic growth in line with its rivals at a headline operating profit of “at least” 15% by the end of 2021. It will also embark on a £300m restructuring drive over the next three years to achieve £275m in savings, the proceeds of which will be reinvested to help it pursue its repositioning as a creative transformation company.

Big, big dividends

The trading environment remains tough though, and it could intensify in 2019 should speculation of a sharp cooldown in the global economy become reality. But for the moment, City analysts are expecting WPP to recover from the anticipated 28% profits reversal for 2018, with a 5% bottom-line rise next year.

For this reason the number crunchers believe the advertising ace will have the confidence (and the financial robustness) to hold the full-year dividend at 60p per share through to the close of 2019, meaning an eye-popping 7% yield through this period.

WPP still has the position in key markets, the financial might and the expertise to thrive in the evolving advertising market. With some surgery, I’m confident that it can provide stunning shareholder returns in the years ahead. And that huge dividend yield makes it a particularly attractive blue chip to load up on today, certainly in my opinion.

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Royston Wild 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.