Stock market sell-offs can be unnerving to watch. But for proactive long-term investors, they provide an excellent opportunity to snap up bargains. I’m currently scouring the FTSE 250 for value stocks to buy following recent heavy weakness.
Britain’s second-tier share index has fallen back below 19,000 points in recent sessions. This means that some top-quality stocks are now trading for peanuts.
Here are two whose enormous dividend yields have attracted my attention.
ITV
Forward dividend yield: 7%
Broadcasters like ITV (LSE:ITV) face a mighty challenge as viewers migrate from traditional means of watching to streaming services such as Netflix and Amazon’s Prime.
Ofcom data shows that the proportion of people watching a programme on broadcast television each week dropped from 83% in 2021 to 79% last year. This was the biggest annual decline since records began.
However, I’m confident that ITV can still thrive in this changing environment. After all, it has a great track record of success in the streaming arena.
The number of monthly active users of its ITVX platform rose 29% in the first half of 2023, to 12.5m. And soaring viewer numbers pushed digital revenues at the firm 24% higher, beating company forecasts. As investment in programming and technology rumbles on, I expect ITVX to continue delivering the goods and offset the decline of the company’s traditional operations.
Tough conditions in the advertising market pose a threat to ITV’s earnings in the near term. But I don’t expect this to affect the company’s plan to pay a 5p per share dividend in 2023.
Dividend cover falls below the widely-accepted safety benchmark of 2 times or above. However, it remains at a solid 1.7 times. And the FTSE 250 firm has a robust balance sheet, with a net-debt-to-EBITDA ratio of just 1.2 times.
As well as having a high dividend yield, recent share price weakness means ITV trades on a forward price-to-earnings (P/E) ratio of 8.3 times. This suggests excellent value to me.
Warehouse REIT
Forward dividend yield: 7.6%
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Real estate investment trust Warehouse REIT (LSE:WHR) is another dirt-cheap FTSE 250 stock on my radar today.
It carries an even larger forward dividend yield than ITV. And it trades on a price-to-earnings growth (PEG) ratio of 0.9. A reading below 1 indicates that a share is undervalued.
Rising interest rates pose a threat to the company’s expansion-led growth strategy. But I still expect the firm to enjoy excellent profits growth over the next decade.
As a specialist in storage and distribution hubs, Warehouse REIT is well-placed to capitalise on the e-commerce explosion. Indeed, like-for-like rents here jumped 5.3% in the 12 months to March. There aren’t enough warehouses and logistics spaces to meet demand, and a weak development pipeline in the UK suggests this shortage is set to last.
REIT rules mean that the company has to pay at least 90% of annual rental profits out in the form of dividends. This could make Warehouse REIT an excellent way to make passive income for years to come.
