Scotland take on Germany tomorrow (14 June) in the European Championships opener. The game is live on ITV (LSE: ITV), which prompted me to take another look at this FTSE 250 dividend stock.
After all, it’s up 24% year to date, so something must be going right. Is it worth adding to my portfolio? Let’s tune in and take a look.
A factory of hit shows
ITV is a vertically integrated producer, broadcaster and streamer. On these three, I’m bullish, bearish and undecided, in that order. Let me explain.
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First off, I love the content ITV produces through its Studios division. Decades of know-how goes into these shows, making it a hit factory. And like many viewers, I thought the recent drama series Mr Bates vs the Post Office was incredible.
Then there’s Love Island, which isn’t my cup of tea. Indeed, I’d prefer to go in the kitchen and make a cup of tea when it’s on. But there’s no denying that this dating show continues to be a massive international success.
Downton Abbey was also hugely popular abroad. It even boosted tourism to the UK, with fans eager to experience the stately home lifestyle depicted in the show.
Last year, ITV Studios delivered record revenues and profits, with 32% of total revenue coming from streaming platforms like Netflix and Amazon Prime Video. These content-hungry streamers will likely be devouring some of ITV Studios’ shows for many years to come.
This unit is on track to deliver average revenue growth of 5% per year between 2021 to 2026. It’s the jewel in ITV’s crown, I’d argue.
And the other two?
As for traditional broadcasting, it’s hard to be anything other than pessimistic about that. Linear TV has long been in decline, with advertising spend shifting to where audiences are (streaming and social media).
This is why ITV is placing so much emphasis on its streaming platform, ITVX. Total viewer hours there rose 16% in the first quarter to 449m hours, with digital advertising revenue up 14%.
By 2026, ITV sees digital revenue climbing to at least £750m. But my worry is whether this will be enough to eventually offset the ongoing decline in traditional ads.
ITVX also faces a mountain of competition, from YouTube to Disney+ and beyond. I fear the younger generations might not replace older viewers in large enough numbers over time.
That said, the digital strategy is progressing very well so far. And ITV announced in March that it had sold its 50% holding of BritBox International to the BBC for £255m.
I was never convinced about that venture, especially the name. So I think that was a smart move. The firm plans to return £235m of the cash to shareholders via a share buyback.
Should I invest?
The stock looks good value, trading on a forward price-to-earnings (P/E) ratio of 8.7. But it’s looked cheap for a long time, having fallen around 55% in the past decade.
Of course, that’s not counting dividends, but they haven’t been growing reliably. In 2019, the payout was 8p per share. Today, it’s 5p per share, giving a yield of 6.4%.
Overall, I’m still not convinced enough to invest in ITV. I think there are other stocks capable of providing better returns in the years ahead.
