The FTSE 250 is packed with brilliant bargains following recent stock market volatility. Broadcaster ITV (LSE:ITV) is one dirt-cheap dividend stock I’m considering investing in.
For next year the business trades on a price-to-earnings (P/E) ratio of 7.9 times. But what really grabs my attention is its vast 6.7% dividend yield.
I do not have a bottomless well with which to invest. So I am thinking of prioritising buying dividend stocks to make a positive return next year. Achieving solid capital appreciation might be more difficult as a cooling global economy hits company profits.
But how robust are ITV’s dividend forecasts? And should I buy the former FTSE 100 stock for passive income in 2023?
Great protection
ITV shares have not been the best choice for income investors in recent years. The business slashed the full-year dividend for 2019 and paid none at all the year after, due to Covid-19.
But last year it got the ball rolling again with a 3.3p per share annual dividend. And it vowed to pay “an ordinary dividend of 5p per annum” in 2022 with a view to growing the reward over time.
City analysts believe ITV will make good on this pledge. And they think it will pay a 5p dividend in 2023 too.
Pleasingly, these projected dividends are also well covered by anticipated earnings. Dividend cover ranges between 1.9 times and 2.1 times for the next two years.
This is in line with a reading of 2 times and above that investors crave. This provides a decent margin of safety in case profits come in lower than expected.
Ad woes
ITV’s strong dividend cover is essential for investors today. Profits at the company are in danger of slumping as advertising income splutters.
Total ad revenues at the Love Island creator fell 2% in the nine months to September. And in Q3 they dropped an eye-popping 14%.
Tough macroeconomic conditions in 2023 mean that ad-related turnover could remain weak too.
A top stock
I believe ITV should still have the means to pay those predicted dividends though. It has that ample dividend cover. And it also boasts considerable balance sheet strength (it had liquidity of £932m as of September, including £332m in cash).
In fact I think ITV will be a lucrative dividend stock to own for years.
Firstly, the business has made terrific progress in the highly-lucrative streaming market. It recorded a whopping 813m streaming hours in the nine months to September. And the launch of its new ITVX platform this week could supercharge viewer interest still further.
And secondly, steps to build its ITV Studios division into an industry powerhouse has paid off handsomely. Revenues here soared 16% between January and September. And the business continues to invest heavily in acquisitions to drive growth.
ITV’s share price has slumped by a third this year. I think this represents a top dip-buying opportunity for long-term investors. And especially for those seeking big dividends.
