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Is WPP's 6.23% dividend payment at risk?

16th May by Jack Brumby

The two-year share price chart for WPP (LON:WPP) shows just how much sentiment has turned on the advertising giant following the departure of Martin Sorrell and underwhelming trading data: 

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WPP's dividend forecast dividend yield now stands at 6.23% but, given the company's current operational issues, how safe is it?

One of the quickest ways to kick the tires on your current dividend generators is to check the dividend cover (earnings per share divided by dividend per share). Dividend cover is the inverse of the dividend payout ratio. Dividend cover of two times or above is strong. Anything below one and a half times - as is the case for  - should be stirring us to investigate in more detail.

GET MORE DATA-DRIVEN INSIGHTS INTO LON:WPP »

Calculating WPP's dividend cover ratio 

A low level of dividend cover means that a small decline in earnings could consign your dividend payment to the scrap heap. It happens all the time. With that in mind, let’s take a look at Wpp’s dividend cover.

We can get all the information we need to see if Wpp has an adequate level of dividend cover from the group’s StockReport. The group’s FY18 earnings per share were 83.7p and its FY18 dividend per share was 60p. 

Divide the former by the latter and we get a trailing twelve-month dividend cover for Wpp of 1.39. This is below the 1.5 times cover limit that marks the point at which we should do some further digging on dividend sustainability and safety.

Income investing: what you need to know

For many investors, dividends are a vital part of their long-term strategy. That's why we have created a variety of income-focused stock screens, such as the Best Dividends Screen, to identify promising candidates for income portfolios. Take a look and see if any of the qualifying stocks might be worthy of further research.

As for Wpp (LON:WPP), you can find a wealth of financial data on the group's StockReport, including information on the group's past and forecast dividend payments. If you’d like to discover more about dividend investing, you can read our free ebook: How to Make Money in Dividend Stocks.

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