ITV: The Terminator

Stephen Bland selects the fifteenth and final share for his latest high yield portfolio.

This first Wednesday in the month marks both the regular article on my latest addition to HYP3 and also its final candidate. I've decided to stick with fifteen shares, the same number that I selected originally for my HYPs 1 and 2. To recap, HYP3 is the high yield portfolio that I have constructed by monthly additions and which I am prepared to trade on occasion. This is in contrast to HYPs 1 and 2 which are eternity portfolios.

The reason I've stuck with fifteen shares is not necessarily the desire to start all my demo portfolios with the same number of shares but because it happens that I've gotten low enough down in the big cap yield rankings and also there is a decent sector diversification established. I don't want to dilute the portfolio yield with too many lower yielding shares. When I say lower yielders, that is a relative term. I mean they are still well above the FTSE100 average yield but well below the average of HYP3.

Share number 15 is ITV (LSE: ITV) . Another very large cap and at £4.0bn about three quarters down the FTSE100, it duplicates a share from the Media sector because readers may recall that last month's choice of Pearson was also in the this sector. However ITV is the well known television company whilst Pearson is a publisher and I see this as sufficiently differentiated. As I have mentioned before, I don't regard the official sectors as necessarily always those which a HYPer should follow when ensuring their portfolios are adequately diversified.

Here is the current standing of the portfolio, now complete.

* William Hill replaced Rank, which was sold in April 2006.

For the year to 31/12/05 the company paid dividends of 3.12p. The consensus forecast for 06 is 3.55p and 07 3.89p so we are looking at decent increases of around 13% and 9% respectively. After that, strategic ignorance tells us me that I don't know and I don't want to make any guesses either as to how the business and its dividends may progress. On the 06 forecast then, the expected yield at my above buying price is about 3.6% rising to around 4.0% for 07. These compare with the current average for the FTSE100 which is in the region of 3.3%.

ITV does not have the five year rising dividend history that ideally I like to see for HYP shares. Nevertheless I see the figures as sufficiently attractive that I am prepared to make one of my exceptions in this case.

Gearing of 15% at the last annual accounts of 31/12/05 is very modest. However that figure is against all net assets. Deducting the very large intangible element to arrive at net tangible assets produces a negative figure of the latter. Note though that this not unusual in media based businesses so I don't see it as anything to worry about for this HYP.

So that's it for HYP3. Another completed high yield portfolio. I am in no doubt that this will do the business over time in delivering its principal aim of a rising income commencing substantially higher than the market together with its secondary target of a market beating capital performance, just as HYPs 1 and 2 have done. Readers will appreciate I'm sure though that there can never be any guarantees with an equity strategy.

At the above current prices of the shares the forecast yield of the portfolio is about 4.7%. From now on my quarterly updates will include progress of all three portfolios. For benchmark purposes the FTSE100 as at the date of completion of HYP3 on 31/07/06 was 5,928.3 at which point the portfolio was worth £78,197, thus already delivering a small gain of 4%. Also there will have been some worthwhile income over the fifteen months I spent constructing HYP3. However, I'll ignore the gain and income to date and start from now in measuring its progress.

> Read more about the high yield portfolio strategy.

Of the shares shown Stephen owns Alliance & Leicester, BT, DSGI, Lloyds TSB and United Utilities.