This FTSE 100 dividend stock has dived 10% today. Should holders panic?

Despite beating expectations, fears surrounding the coronavirus have hit this FTSE 100 (LSE:INDEXFTSE:UKX) stock. Paul Summers takes a closer look.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Shares in top-tier-listed media company ITV (LSE: ITV) were sharply lower in early trading this morning following the release of its latest set of full-year numbers.

Should those already holding the stock be worried? I don’t believe so.

Ahead of expectations

To be clear, trading over 2019 was far from terrible. Indeed, today’s figures were ahead of even ITV’s own expectations. 

Thanks to a burst of growth in the second half of the financial year, total external revenue rose 3% to £3.3bn. And while total advertising revenue fell 1.5%, this result was better than that originally forecast. 

Away from the headline figures, there was also evidence to back up CEO Carolyn McCall’s claim that the company was developing into “a stronger, more diversified and structurally sound business”. Total revenue from its Studios division grew 9% with online revenue jumping 21%. The FTSE 100 member had also seen decent demand for its premium subscription service ITV Hub+ and recently-launched Britbox collaboration with the BBC. 

There were positives on the financial side of things too. In addition to making £25m of cost savings (£5m ahead of that targeted), net debt also fell to £804m — down from £927m at the end of 2018. That’s far less of a burden than that faced by another company I’ve looked at today

So, why are shares down?

It’s all down to the (understandably foggy) outlook. 

Despite forecasting a 2% rise in total advertising revenue over the first quarter of its financial year, ITV is now expecting a sharp drop in Q2 following the decision by those firms in the travel industry to defer their contracts for a while due to the coronavirus outbreak. As a result, total advertising revenue is expected to tumble 10% in April.

Of course, the numbers could turn out to be better or worse depending on what happens over the next few days and weeks. Like many companies reporting recently, ITV remarked that estimating the full impact of the coronavirus outbreak on business was tricky but that it would “continue to monitor the situation closely“.

Don’t panic

Clearly, today’s share price drop is unlikely to bring cheer to those already holding the shares. Personally, I think they should sit tight

For one, ITV still expects (for now, at least) to grow revenue in 2020. It’s also predicting that its Studios business will grow steadily over the medium term and that “double-digit” online growth will also be achieved.

Then there are the dividends to consider. Today, ITV confirmed that it would pay out 8p per share to holders for the 2019 financial year, giving the stock a trailing yield of 7.7% after taking today’s price fall into account. That’s certainly a lot better than the 1.31% you’d get from even the top-paying Cash ISA right now. While we can’t be certain on how the company will perform in the near term, the fact that dividends look fairly well covered by profits suggests a cut looks pretty unlikely for now.

Attempting to value shares might be even tougher than usual given the current state of affairs, but a forecast price-to-earnings (P/E) ratio of less than 9 suggests ITV offers great value at the moment. Having once been a holder of the stock myself, I may well take a position again if the selling pressure continues.

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.

Paul Summers 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.

More on Investing Articles

Young woman holding up three fingers
Investing Articles

New to investing? I wish I’d known these 3 things Warren Buffett swears by

Ben McPoland considers three Warren Buffett lessons that have helped his investing returns improve a lot over the last few…

Read more »

Investing Articles

I remain bullish on Nvidia stock despite its overvaluation

Our author says Nvidia stock is overvalued right now. However, he still thinks it might be worth him buying because…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

I’d take the Warren Buffett approach to building a passive income empire

Christopher Ruane explains how he'd try to earn passive income streams from the stock market by learning from billionaire investor…

Read more »

Young Black man sat in front of laptop while wearing headphones
Investing Articles

2 of my most amazing buys from the FTSE 100 for passive income

The FTSE 100's home to a number of exceptional shares offering the prospect of handsome income. Here are two to…

Read more »

Investing Articles

1 AI stock to buy and hold for 10 years

AI spending's expected to soar in the next decade, according to most experts. Here's one stock to consider buying to…

Read more »

Playful senior couple in aprons dancing and smiling while preparing healthy dinner at home
Investing Articles

Dividend deals! 2 passive income stocks that still look undervalued

Royston Wild explains why these FTSE 250 passive income stocks might STILL be too cheap to miss, despite theirrecent price…

Read more »

Middle-aged Caucasian woman deep in thought while looking out of the window
Investing Articles

Is BT Group one of the FTSE 100’s greatest value shares?

BT's share price looks like a bargain when you look at the P/E ratio and dividend yield. Is it one…

Read more »

Frustrated young white male looking disconsolate while sat on his sofa holding a beer
Investing Articles

The National Grid share price just plunged another 10%. Time to buy?

The National Grid share price is one of the FTSE 100's most stable, and nothing much happens to it? Well,…

Read more »