The past few weeks have been turbulent in the stock market and that has thrown up what I regard as some great buying opportunities. One FTSE 100 share I had been eyeing for a while came down to a price where I decided to buy it for my Self-Invested Personal Pension (SIPP).
Priced for uncertainty
The share in question is ad agency group WPP (LSE: WPP). With its global network and heavy dependence on consumer advertising, the uncertain economic outlook has raised the risk level for the company, in my view.
Meanwhile, the role of artificial intelligence (AI) continues to be difficult to foresee. It is already seeing some traditional advertising spend disappear – but might it also help agencies like the ones WPP owns, by cutting labour costs?
Either way, the business faces potentially tough times. In a trading update last week (after I bought the share for my SIPP), it announced that reported revenue for the first quarter fell 5% year-on-year. It referred to a “challenging” macro-environment.
It is perhaps little surprise then, that the WPP share price has fallen 31% so far this year.
That means it is now just 4% higher than five years ago. During that period, the broader FTSE 100 index is up by 46%. In relative terms, WPP has been an absolute dog.
Lots to like, not least the price
Why then, did I add it to my SIPP when there are other bargain-looking buys available from the blue-chip index amid the current market turmoil?
The yield looked juicy, at 6.9%. But while that is well ahead of the FTSE 100 average, dividends are never guaranteed to last.
WPP shareholders do not need to be told that, as the firm’s payout per share was sharply reduced during the pandemic and has never got back to its former level.
It is the source of the dividends that attracts me. The advertising market may face uncertainty but it has done so many times before. WPP is one of the big players with a deep client roster, large set of capabilities, global footprint and proven business model.
I think all of this helps stand it in good stead. In its trading statement, it said that it has not yet seen any significant change in client spending following US tariff announcements. It also affirmed its full-year guidance.
In reality, I think it is too early to tell with certainty how the business will fare over the next nine months. But clearly management remains confident – and WPP has a lot of what it takes to do well as a business.
Set against this, I think the share price fall has been overdone. The share now trades on a price-to-earnings ratio of 12, which I find attractive for a business of this quality.
Meanwhile, if the dividend is maintained, owning the share could add some additional passive income to my SIPP, ready to compound by investing in other bargain blue-chip shares or potentially more WPP ones.
