I am always on the lookout for ways to boost my passive income streams. That is why I have been adding dividend shares to my portfolio.
In November, I bought more shares of a company in which I had already invested. With a 6.6% dividend yield right now, I think they offer me good long-term income prospects — and perhaps also the chance for some capital gains.
Well-known broadcaster
The stock in question is ITV (LSE: ITV).
ITV is well known for its terrestrial television operation (with millions of fans tuning in at the moment to watch the World Cup). But it has also been investing in expanding its digital operations. On top of that, the company uses its production capabilities and facilities to make content for other broadcasters, generating sizeable revenues.
That adds up to a profitable business. Last year, profits after tax came in at £388m, more than a million pounds per day.
Appealing dividend shares
That profitability helps support a healthy dividend.
For 2021, the company paid a final dividend, which came in at 3.3p per share. This year it has paid an interim dividend of 1.7p per share and committed to a total dividend of at least 5p per share, meaning the final payout will be higher than last year. ITV said this year that it “intends to pay an ordinary dividend of at least 5p per annum, which can grow over time”.
At the current share price, that means the yield is 6.7%. I am hopeful that the company will indeed raise its dividend over time. But even if it only delivers 5p, the yield is attractive to me.
Capital gain potential
As well as the income opportunity, I am hopeful that owning a stake in ITV could let me benefit from potential gains thanks to an increasing share price.
Yet over the past year, the ITV share price has fallen 31%.
That means that the current price-to-earnings ratio is less than 7. I see that as a bargain for a company with the competitive advantages of ITV. Its existing customer base, unique content and facilities could all help it stay profitable for a long time to come, in my view.
Some risks
But if the yield is high and business outlook good, why have these shares tumbled in price?
Some investors are concerned by the risks of ITV spending heavily to grow its digital footprint. That could eat into profits.
On top of that, while recent years have seen a boom in demand for third-party content production, that could fall suddenly if industry giants like Netflix and Apple start to cut budgets in response to an advertising downturn.
I bought this month
Weighing the risks against opportunities, I decided to increase my ITV stake this month.
Hopefully, over time, these dividend shares can reward my confidence.
