Over the past 12 months, the FTSE 100 is up 4.5%, while the mid-cap FTSE 250 is slightly ahead, rising 5%. Meanwhile, the US S&P 500 has soared by 30.4%, beaten by the tech-heavy Nasdaq Composite — up 37.6% in a year.
Given that US stocks have thrashed British shares over one, five and 10 years, it’s sometimes hard to keep my faith as a value investor. But then some deeply undervalued London-listed shares shoot upwards, restoring my belief in buying overlooked and unloved businesses.
ITV takes a tumble
For example, take ITV (LSE: ITV) shares, which have suddenly exploded after hitting lows last month. Founded in 1955, ITV is Britain’s biggest commercial terrestrial broadcaster. Alas, with advertisers cutting back spending on ‘old school’ television, ITV’s core revenues took a hit in 2023.
Then again, ITV also produces content for other media outlets across the globe and operates ITVX, its fast-growing streaming service. And while its legacy business is limping along, ITV’s digital division is going great guns.
At its 52-week low on 28 February, the ITV share price slumped to 54.94p. This caught my eye, as my wife and I bought this stock for our family portfolio in mid-2022.
We paid 68.7p a share for our stake in this FTSE 250 firm. Hence, at February’s rock-bottom, we were sitting on a paper loss of a fifth (-20%) of our money. Oops.
This mid-cap share is flying again
As I write — before the market close on Tuesday (19 March) — the ITV share price stands at 71.8p, valuing this group at £2.9bn. This valuation is down 44.7% over five years.
These leaves the stock a tidy 30.7% above its February low, plus it’s ahead by 23.1% in one month. This sudden comeback has turned our 20% loss into a modest gain of 4.5%, which is quite a relief.
To be honest, the ITV share price has been more volatile than I expected it to be when we bought in over 20 months ago. But our primary goal when buying this FTSE 250 business was to collect a stream of cash dividends from ITV.
For 2022, we collected 5p in dividends from this stock, with the same to come for 2023 when the final dividend of 3.3p is paid on 23 May. This additional 10p lifts our return by a further 14.6%, easily beating both the FTSE 100 and FTSE 250 over our period of ownership.
What next?
My record of forecasting the future appears to be no better than guesswork, so I prefer not to make predictions regarding future share prices.
However, even after this recent price rebound, ITV shares still offer a market-beating yield. The current dividend yield is 7% a year, well ahead of the Footsie‘s yearly cash yield of 4%. However, this payout is only just covered by trailing earnings, so it could be at risk and is by no means guaranteed.
Indeed, if current trends were to continue, then the group could see lower revenues, earnings and cash flow in 2024 than for last year. If this were to happen, then I suspect the board might seek to cut the dividend to preserve cash.
However, as I see no signs of this happening this year, I will hold on tightly to our ITV stake and await developments!
