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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see WPP plc (LON:WPP) is about to trade ex-dividend in the next 2 days. You can purchase shares before the 8th of October in order to receive the dividend, which the company will pay on the 6th of November.
WPP's next dividend payment will be UK£0.10 per share, and in the last 12 months, the company paid a total of UK£0.20 per share. Looking at the last 12 months of distributions, WPP has a trailing yield of approximately 3.2% on its current stock price of £6.256. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.
View our latest analysis for WPP
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. WPP reported a loss last year, so it's not great to see that it has continued paying a dividend. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If WPP didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. It paid out more than half (62%) of its free cash flow in the past year, which is within an average range for most companies.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. WPP reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, WPP has lifted its dividend by approximately 2.6% a year on average.
We update our analysis on WPP every 24 hours, so you can always get the latest insights on its financial health, here.
The Bottom Line
Has WPP got what it takes to maintain its dividend payments? It's hard to get used to WPP paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.