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After a stellar 2025, the FTSE 100‘s dividends have now fallen to 3.1% due to surging stock prices. That’s notably decrease in comparison with its ordinary 4%. And it exhibits valuations are climbing quicker than dividends.
Nonetheless, there continues to be a protracted checklist of high-yield alternatives for buyers to discover, with 91 UK shares providing a payout of seven% or extra proper now.
The problem is discovering which of those firms can maintain their chunky dividends for a few years to return. In spite of everything, a excessive yield is in the end nugatory if dividends are later minimize – one thing WPP (LSE:WPP) shareholders have just lately been reminded of.
So how can buyers set up a 7% dividend yield utilizing an ISA in 2026?
It’s all about money stream
Let’s begin by taking a more in-depth have a look at what’s occurred with WPP. The once-thriving branding and promoting big noticed its money flows sliced in a number of instructions. However as a fast, oversimplified rationalization, weak financial situations lowered demand, leading to key shoppers in search of to chop prices, strolling out the door in favour of free AI instruments to create advertising content material in-house.
This good storm of structural and cyclical failures despatched income plummeting together with WPP’s share worth. And subsequently, the dividend yield shot up from round 4% to as excessive as nearly 12%.
An organization experiencing a large share worth crash is nothing uncommon. Even world titans like Amazon have had massive stumbles like this a number of occasions, most just lately in 2022. Whereas it’s actually an disagreeable expertise, what dividend buyers must regulate is money stream.
Does the corporate nonetheless generate sufficient money to cowl its dividend funds? And if not, does it have enough monetary assets to maintain dividends flowing all through its restoration?
Within the case of WPP, investigating these questions previous to its half-year outcomes would have revealed the reply to be ‘no’ in each circumstances, serving to buyers keep away from falling into this yield lure.
A possible alternative?
Even with dividends minimize, WPP’s ahead dividend yield for the complete 2025 yr stands at 7.1%, barely forward of our 7% ISA goal. So with the injury already finished, is that this inventory now a hidden alternative for contrarian buyers?
Once more, all of it comes again to money stream and WPP’s capacity to begin producing extra earnings once more.
The corporate has already appointed Cindy Rose as the brand new CEO, who moved into the nook workplace in September. She’s already begun creating a brand new turnaround technique that can kick off in early 2026 with plans to streamline the agency’s bloated and sophisticated operations.
Contemplating operational simplicity is likely one of the major the reason why its main rivals comparable to Publicis and Omnicom have considerably outperformed by comparability, that implies money stream technology might see appreciable enchancment subsequent yr.
What’s extra, if continued rate of interest cuts spark financial progress, demand for promoting might help and speed up WPP’s restoration.
In fact, all of it boils right down to execution. Proper now, WPP’s staying on my watchlist. But when its money stream begins to bounce again beneath Rose’s management, it might certainly be a high-yield share value contemplating for an ISA earnings portfolio.
