FTSE 100 alert! This 7.5% dividend yield has sunk in H1, is it a sensational dip buy?

Royston Wild looks at a FTSE 100 (INDEXFTSE: UKX) income share and asks, is it a great contrarian buy at current prices?

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To describe the first half as being troublesome for ITV (LSE: ITV) would be an understatement of almost biblical proportions. The FTSE 100 broadcaster’s share price was stable until early May when first-quarter financials worsened fears over the health of the advertising market.

In the release, it announced total ad revenues were down 7% in the three months to March. But this was followed by news it expects a further 2% sales drop in May and a 20% fall in June, reflecting the absence of the FIFA World Cup which bolstered revenues last year.

Clearly, the tense economic and political backdrop in the UK continues to play havoc with industry budgets.

More bad news

In spite of the persistent pressures in the ad market, the impact on ITV, and the uncertainty over when exactly conditions will begin to clearly improve, I have retained my bullish take on the Footsie firm.

The company’s migration from traditional television broadcaster to online media colossus, the rate at which viewers are flocking to its ITV Hub streaming service, and the healthy revenues growth enjoyed by its ITV Studios pan-global production arm, all suggest the long-term profits outlook remain robust.

Since the release of those quarterlies, however, my faith in the company’s growth prospects have taken a bit of a dent following more alarming news on some of its cash cow shows.

Reality bites

ITV’s share price kept on falling in May when The Jeremy Kyle Show, one of its most popular programmes and one which can be found on all of its channels, was taken off the airwaves following the suicide of one of its former guests. The seriousness of the news has driven the Footsie firm’s share price to levels of cheapness not seen for six years. It’s now down 16% from the close of 2018.

It’s not that investors are fearful about the loss of huge ad revenues from the axing of the daytime chat show alone. It’s the fear that ITV will be forced to wave goodbye to a number of its money-spinning reality shows in the wake of the crisis and move away from the genre. After all, it’s one which has provided the backbone to its long-running record of annual profits growth.

Love Island in particular has been one of the broadcaster’s success stories in recent years and has spawned a number of spin-off shows in territories across the globe. The future of this franchise, one in which a number of its former contestants have also committed suicide in recent times, has been plunged into doubt following the Kyle show scandal.

It’s too early to say whether the death knell has been sounded for many of ITV’s best-loved shows, but I would argue the firm’s low forward P/E ratio of 7.9 times bakes in the risks facing the company. In fact, it could be considered that the recent share price correction offers a splendid dip buying opportunity, boosted by the broadcaster’s mighty 7.5% dividend yield.

There may well be more bumps in the road but, all things considered, I think the future remains extremely bright for the Footsie firm and continues to be a very-decent long-term ‘buy’.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended InterContinental Hotels Group and 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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