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There are quite a few high-yield dividend shares in the FTSE 250. One of them has had a terrible 12 months, so I took the opportunity to add some to my SIPP over recent months.
Will this turn out to be a long-term bargain? Or a value trap?
Juicy yield
The share in question is former FTSE 100 member WPP (LSE: WPP).
The advertising group has been grappling with fast-evolving changes in its industry landscape. AI has already replaced humans in some parts of the ad industry.
Investors worry that there may be a lot more of that to come, potentially hurting profits badly at legacy advertising groups – or even making their business models redundant altogether.
Previously, WPP was a juicy dividend payer. However, it halved its interim dividend per share last year.
Presuming that sets the expectation of an equivalently sized cut in the full-year payout, the move has reduced WPP’s attractiveness as income share.
Even presuming the full-year cut, though, that would still mean the share offers a prospective yield of 6.4%. That is not far off double the current FTSE 250 yield of 3.3%.
Lots to prove and an uncertain future
However, the dramatic slashing of the interim payout was an alarm bell. It followed a few years after another big cut in the WPP dividend.
Dividends are never guaranteed, as WPP has demonstrated painfully. As an investor, my mind is on the question of whether the dividend is sustainable even at its much reduced current level.
That leads onto the bigger question of what WPP’s business model will deliver from here.
The reality is nobody knows.
AI is already eating some of its lunch. But that is true for industry rivals too. WPP’s size could be an advantage if the industry shrinks and smaller players fold.
I also reckon AI could be an opportunity for the company. It could help bring some of WPP’s costs down. Longer term, in a world drowning in AI-generated content, there could continue to be a lucrative model in human-made creative work that helps set clients above the sea of AI noise.
Getting this right will be a struggle. As the FTSE 250 share’s collapse in the past year demonstrates, so far WPP has not done a good job of it.
In it for the long haul
Despite those challenges, I continue to like the investment case for WPP.
It has strong agency brands, a huge creative workforce, and deep, trusted relationships with a large roster of blue-chip clients.
Playing to those strengths and tacking to the winds of change in an AI-influenced landscape will be essential for WPP’s long-term survival, I reckon.
If it does that well, there could be value here that I do not believe the current share price reflects accurately.
I plan to hang onto this FTSE 250 share for the long term, in the hope of a turnaround in its fortunes.
