Starting in June 2022, my wife and I built a mini-portfolio of 17 new shares. One FTSE 250 share we bought was British broadcaster ITV (LSE: ITV). Unfortunately, after a promising start to this year, the ITV share price has dived since late February.
ITV soars, then slumps
We bought ITV stock for our family portfolio at 68.7p a share in June 2022. At first, the ITV share price showed considerable strength. Indeed, by 9 February, it hit a 52-week high of 96.62p. But this was not to last.
As I write (just before Friday’s market close), ITV shares are trading at 70.56p. This leaves us sitting on a modest paper gain of 2.7% to date. It also puts the FTSE 250 group’s valuation below £2.9bn.
Here’s how the ITV share price has performed over seven different periods:
| One day | +0.7% |
| Five days | -0.1% |
| One month | -4.9% |
| Year to date | -6.2% |
| Six months | +1.6% |
| One year | +8.1% |
| Five years | -60.1% |
Despite rising by over 8% in 12 months, ITV shares have been a long-standing value trap, losing three-fifths of their value over five years. However, the above figures exclude cash dividends, which are a major component of the long-term returns from this stock.
Why we bought ITV
My wife and I bought this stock as a value/dividend/income play, after the declining share price pushed up the dividend yield.
What’s more, if we did not already own this stock, then I would want to have some today for exactly the same reasons. At the current share price, ITV shares trade on an historic price-to-earnings ratio of 6.7, which translates into a bumper earnings yield of 15%.
What’s more, this stock’s juicy dividend yield of 7.1% a year is one of the highest in the FTSE 350 index. Even better, it is covered 2.1 times by earnings, which offers a comfortable margin of safety.
In addition, analysts expect ITV’s cash payout to rise from 5p this year to 6.5p in 2024 and 7p in 2025. If these forecasts prove correct, then we stand to collect 18.5p in cash per ITV share over the next 2.5 years. Great stuff.
I expect the ITV share price to bounce back
Today, ITV announced that it has entered talks to buy film and TV producer All3Media, maker of such hits as BBC comedy Fleabag and Channel 4’s Gogglebox. Of course, it is early days, so there is no guarantee that this transaction will happen.
For me, it makes sense for CEO Carolyn McCall to beef up ITV’s production arm, given that its broadcasting division is dealing with falling advertising revenues. But whether shareholders like this proposed £1bn deal remains to be seen.
Summing up, I expect ITV to have a tougher 2023 than 2022, due to falling cash flow and earnings. But over the longer term, I see this stock as a recovery play with a hefty dividend kicker. Indeed, if I had any cash to spare, I’d happily buy more ITV shares today!
