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2 top dividend stocks I’d buy in February

While analysts debate whether the volatility and sell-offs in the markets are behind us, I’m going to discuss two blue-chip companies that have had a difficult year. I believe their shares offer value and robust dividends for income.

Growth Strategy

In December, WPP (LSE: WPP), the world’s leading multi-agency advertising group with a global market share of almost 20%, released a three-year plan, called WPP Presents Strategy for Growth.

The company will now invest more in technology and cut jobs as well as operating expenses to boost profit margins. It will also re-invest around half of the expected savings of £300m over the next three years back into the business.

The advertising industry has been changing rapidly: more and more companies buy ads directly from online platforms like Facebook, Twitter, and Alphabet-owned Google. Yet WPP’s management believes that its creative vision coupled with better use of technology will enable it to capitalise on its strong ability to retain clients with a well-diversified geographic exposure.

Bargain hunters have been looking closely at this diverse company, which currently trades at just 6.1 times earnings with a dividend yield of 6.9%. The board has confirmed that it is committed to maintaining the dividend which has been increasing since 1993. Analysts and investors have cheered this restructuring plan as they believe the company will be able to turn around the shares that are down almost 35% over the past year.

Travel Worries

Last week, international travel group Tui (LSE: TUI) issued a surprise profit warning and sent its stock down sharply to add up to the Anglo-German group’s shares having lost almost 40% of their value over the past year.

Management blamed the seasonal and volatile nature of the holiday industry, including the summer heatwave of 2018 and a weaker pound for more Britons choosing to holiday in the UK instead of travelling abroad.

As a vertically integrated operator, the firm offers products and services for “all stages of the customer’s holiday,” including planning, booking, accommodation, flights, and other travel-related activities.

The company now trades at just 8.4 times earnings with a dividend yield of 7.6%.  It has confirmed that it will continue to increase its dividend in line with adjusted earnings. With about £2.3bn of cash on its balance sheet, it has sufficient liquidity to meet its highly seasonal working capital requirements.

It is possible that the global, as well as the UK tourist industry, could suffer further amid the slowing world economy and continuing Brexit saga. However, I believe that any bad news that is specific to the company or the industry is already baked into the share price.

Furthermore, TUI has been proactive in focusing on increasing its offerings, including the number of cruise ships, hotel, and destinations. Therefore I expect it to build on its dominant position as the tour operator of integrated “holiday experiences” in the European travel market.

The bottom line

I believe that offering technologically advanced customised solutions, as WPP has proposed, will be one of the important ways advertising agencies can achieve further organic growth. And as the dust around Brexit settles, travel operators such as TUI should be able to benefit from UK holidaymakers’ love of travelling abroad.

With their high dividend yields, I think both could find a place in the portfolios of investors who are in it for the long haul.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. tezcang has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Alphabet (A shares), Alphabet (C shares), Facebook, and Twitter. 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.