The Astonishing Growth of Dividends at WPP, IPG and Omnicom highlights their Business Model Problem

Not only do holding companies have to liquidate talent through annual downsizings -- they must pay growing levels of dividends to shore up share prices. How long can this go on?

Credit: Leo Cullum, The New Yorker, The Cartoon Bank

In 2024, the combined dividends of WPP, IPG and Omnicom added up to $1.764 billion (https://www.megatrends.net).

This was a tripling of their combined 2009 dividends, which added up to $576 million 15 years ago.

Dividend payments have grown at nearly 8% per year, even though the combined sales growth of the three holding companies has been barely 2% per year.

WPP’s 2024 dividends were equivalent to 91% of its Net Income. It’s been higher than this in the past. In 2019, WPP paid out dividends that were 135% of Net Income.

By contrast, IPG’s 2024 dividends were equivalent to 72% of Net Income, while Omnicom’s has remained steady at about 43%.

Say what you will about holding company investments in technology, including AI — these three holding companies are using a considerable portion of their cashflow for dividends — to keep shareholders happy and to shore up share prices.

That’s because their media and creative agencies no longer deliver acceptable performance from their ongoing base businesses. The price for agency services has been in sharp decline for more than 30 years, as workloads have grown but fees have not kept up.

Holding companies have acted as if they have cost problems rather than price problems, and this has led them down the dark path of chronic cost reductions that have weakened their capabilities.

The Omnicom / IPG merger has already stated that $1 billion will be eliminated through the merger, $250 million from IPG and another $750 from the combined entity.

If the holding companies had acted more like private equity firms, they would have dedicated themselves to strengthening their portfolio companies (media agencies, creative agencies, PR agencies, research and data companies, etc.) to ensure the sustainability and profitability of their base operations.

Instead, though, these three holding companies have squeezed agency costs over the past 20 years and used financial engineering tactics, like increased dividends and share buybacks, to dress up financial operations, along with relying on principal-based trading to make money from their clients’ media investments.

This will not end up in a good place for them.

Cost reductions have so reduced agency capabilities over the decades that they lose clients at an alarming clip, forcing themselves into becoming very expensive “new business” operations that must be constantly on the hunt.

Growing dividends and share buybacks have replaced growing agency performance as a base for increased shareholder value, but sooner rather than later the cash will disappear….and holding companies will have to resort to selling off their assets to keep Wall Street happy.

And this is how it all may end…not with a bang but a whimper.