I’m considering the dividend potential of two FTSE 250 shares that may look underwhelming at first. While they both have attractive yields of around 7%, niether have a particularly good track record.
However, I’m impressed by the resilience these companies have exhibited when faced with tough market conditions. Both bounced back strongly after their Covid-era struggles, now refining their strategies and embracing new ideas.
ITV
At first glance, ITV (LSE: ITV) doesn’t look like a dividend powerhouse. During the 2010s, shows like Coronation Street and Love Island pumped up profits – until Covid derailed everything. But even before the inevitable cuts in 2020, dividends declined sharply. I imagine popular streaming services like Netflix were already taking revenue from the business.
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Naturally, the share price took a hard hit too. It’s down 25% in the past five years, only now trading slightly above where it was a year ago. But the broadcaster has made some smart changes of late, aggressively cornering the digital video market in the UK.
It’s now firmly on track to achieve its target of £750m in digital sales revenue by 2026. It’s also discontinued its BritBox app to focus fully on the more promising ITVX digital streaming service.
The dividend yield’s held firm around 6.8% for the past two years and is forecast to rise to 7% in the next two. I think the share price also has a good chance of increasing in that time. The recent FY 2023 report revealed a 7% a year drop in earnings per share (EPS), while the shares are down 17%. So analysts estimate the price to be undervalued by 66% using a discounted cash flow model.
TP ICAP
TP ICAP (LSE: TCAP) also has a fairly volatile dividend history. The yield spent much of the past 10 years flipping between 3% and 9%. But in the past few years, it’s spent more time above 6% than below, currently sitting around 7%. Between 2010 and 2020, the company paid a consistent annual dividend of 15p per share almost without fail – until Covid forced the company to slash it in half.
Now just a few years later it’s back at that level and should remain if all goes well. Which is why I’m now looking to buy the shares.
But like many companies, the share price also took a hit, down 18% in five years. In its recent FY 2023 earnings results, EPS fell from 13p to 9.5p, along with net income down 28% and profit margins slipping 30%. Only on one key metric topped analyst expectations, with revenue up 3.4%.
However, the financial data specialist looks to be recovering well. With a share price up 34% in the past year, it’s now back at June 2021 levels and likely to benefit further from growth in European markets and beyond. The business provides intermediary trade execution and settlement services to clients in Europe, Asia, the Middle East and Africa.
With interest rates pegged to fall and markets recovering, I believe is now well-positioned to benefit from an improving economy. Going on past activity, I suspect it will keep the dividend consistent and funnel any additional profits back into the business. That’s the kind of thing I look for when considering a dividend payer for reliable passive income.
