If I could invest a full £20,000 Stocks and Shares ISA contribution limit in just one stock, which one might it be? Suppose I had to pick from the smaller companies in the FTSE 250 rather than the FTSE 100 giants.
I say smaller, but the one I have in mind has a market-cap of nearly £2.8bn. So it’s a long way from being a dodgy penny share, with all the risk that can entail.
So what is it? I’m talking about ITV (LSE: ITV), whose share price has fallen 60% in the past five years.
No riches there?
That might not sound like the kind of performance that great riches are made of. But the fall has now put the forecast dividend at an attractive 7.2%.
Will we actually get that much? I don’t know, but the signs look pretty good to me. Earnings should fall in 2023. But analysts predict a return to growth next year.
We’re looking at a price-to-earnings (P/E) ratio of around 10.5. That looks good, but maybe not a screaming buy. But the earnings rise on the cards for 2024 would drop it to only about 8.4.
Looking better
And if that might not actually have me screaming, it at least has me murmuring loudly. Forecasts suggest the dividend will be steady next year too.
One slight downside is that the dividend won’t be very well covered by earnings. But cover is there, and it should rise as earnings grow.
ITV is the kind of company that has decent forward earnings visibility, which boosts my confidence in the cash. And, incidentally, I think good visibility can be an especially good thing to look for when inflation is high.
Modest debt
I don’t like to see high debt during tough economic times, but ITV looks to be doing well enough on that front. At the end of 2022, net debt stood at £623m.
That shouldn’t trouble a company valued at £2.8bn too much. And its net debt to adjusted EBITDA leverage came in at only 0.8 times, which looks fine to me. Analysts expect debt to fall this year and next too.
So we have a company on a decent valuation, paying healthy dividends, and with solid forecasts. And I think it’s one of the top in its business. So what could possibly go wrong?
A big risk
Well, plonking down a full £20k in one go on a single stock could be asking for trouble. So diversification is a must for me.
And then ITV faces its own risks. For one thing, its earnings and share price have been very volatile over the years. If I’d bought in 2015, for example, I’d be nursing a big loss now.
Oh, and there’s been a bit of a celeb crisis as well, which puts some pressure on the company’s management.
But if I was given £20,000 and had to put it all into a FTSE 250 stock, I just might go for ITV right now.
