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A 6%-plus FTSE 100 dividend stock I’d buy today, and a falling knife I’d avoid

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After spiking higher at the turn of the year, investor appetite for ITV (LSE: ITV) has frozen back over.

Stock pickers aren’t interested in its dirt-cheap valuation nor its gigantic dividend yields that sit in excess of 6. No, concerns over Brexit and how this will smack the FTSE 100 broadcaster’s profits have swaggered into town and darkened its appeal once more.

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Advertising revenues have been on the mend at ITV, but recent research suggests that things could turn pear-shaped again in the coming months, at least if the government follows through on a botched withdrawal from the European Union.

Enders Analysis has predicted that the onset of a no-deal Brexit would cause the ad spend in the UK to move into recession in 2019, a scenario that would cause expenditure across the industry to fall by around 3%. A so-called orderly withdrawal could see advertising budgets rise 2.7%, the researcher said, but the growth rate surrounding this base case would still pale from the 4.7% rise posted in 2018.

Losing its shine

Reflecting the toughness in the ad market over the past 12 months and the possibility of further stress in 2019 and beyond, ITV’s share price has sunk 22% since the same point of last year. This, however, looks like a terrific result when compared with Petra Diamonds (LSE: PDL) whose own market value has contracted a whopping 62% over the period.

The digger of precious stones in Africa hasn’t had the best of it over the past year because of export bans in Tanzania, swelling debt levels, rights issues, production setbacks and impairments on its Koffiefontein mine in South Africa, problems that have forced it into a number of asset disposals too.

Quite a 2018 then. And there remains plenty to be worried about. Sure, Petra’s latest trading statement this week showed that it’s got to grips with those aforementioned operational problems and that diamond production jumped 9.5% between July and December to 3m carats. But I remain extremely worried by the size of the firm’s debt mountain, which swelled to $559.3m as of December from $520.7m six months earlier on the back of swelling costs.

I’d rather buy ITV

Now Petra might be cheap, as reflected by its forward P/E ratio of just 9.8x, but I’m not surprised. The mining giant still has a variety of issues to solve, some of which are significant enough to encourage me not to invest right now.

Yet ITV is quite another story. It also deals on a P/E ratio below the bargain-basement level 10x, indicating the tough conditions in the ad market. But I believe that this makes it a terrific buy given the brilliant sales potential of its ITV Studios division at home and abroad, as well as the way it is diversifying away from television and into other forms of media.

Throw that aforementioned prospective dividend yield of 6.2% into the bargain and I reckon the Footsie firm is a top long-term stock to load up on today.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended ITV. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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