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Faced with geopolitical turmoil, trade tariff shocks and inflation, 2025 hasn’t been the best year for UK companies, even though their shares haven’t done too badly.
Surprisingly, most stocks on the FTSE 100 have weathered the storm fairly well. The index is up approximately 11.5% this year, outperforming previous years and even creeping ahead of the S&P 500.
Still, not all constituents have contributed to the growth. Advertising giant WPP (LSE: WPP) is currently the worst-performing stock on the index, down 51.9% year to date. That’s a staggering collapse for a company once considered one of Britain’s corporate crown jewels.
So what went wrong, and can it recover?
Taking a closer look
WPP was once the largest advertising agency in the world but has endured a torrid 12 months. The company has cut its global workforce by around 6% as it struggles with weak client spending and the rapid rise of artificial intelligence. The situation was compounded by the loss of major clients including Coca-Cola, Paramount and Mars — a triple blow to its reputation.
Leadership has also changed. Cindy Rose, a seasoned Microsoft executive, took over as chief executive on 1 September, replacing Mark Read. Investors will be hoping her digital experience can revitalise the group.
On the numbers front, things look bruising. The shares are estimated to be trading at 53% below fair value, which on paper screams opportunity. But pre-tax profit plunged 71% to £98m in the first half of its financial year. For a group of this size, that sort of earnings collapse is hard to ignore.
Recovery potential
Despite the gloom, there are some glimmers of hope. WPP has increased its annual investment in artificial intelligence to £300m, signalling a serious effort to catch up with industry disruption. If it can find a way to integrate AI into its operations and client services effectively, there’s a chance of a turnaround.
As with any struggling business, there are risks. A failure to win back major clients, further weakness in advertising budgets and continued disruption from AI could all weigh heavily on performance. There’s also the possibility that dividends will be cut further, which could reduce income and harm investor confidence.
But if not, then the dividend remains the key attraction for income-focused investors. Even though the group recently halved its interim dividend from 15p to 7.5p per share, the yield only dropped slightly from 10% to around 8%. On the face of it, that still looks tempting.
Yet if the final dividend is cut in a similar fashion, forecasts suggest the yield could fall below 6% in 2026. That would significantly dent its passive income potential.
Final thoughts
For investors who believe in a turnaround story and are willing to take on some risk, there could be an opportunity here. However, it’s also worth stressing that new investors may find future dividends underwhelming compared to current projections.
WPP is in a difficult position, no doubt about it. Yet the combination of a depressed share price, a still-attractive yield and a new CEO with digital expertise makes the stock intriguing. For income hunters, it might not be the most secure option, but value investors could find something to like.
Whether it recovers or not remains uncertain — but for brave investors, I think it’s still worth considering.
This story originally appeared on Motley Fool
