Finding good value UK stocks that offer generous income payments can be tricky. However, it doesn’t mean that there aren’t any to be found. Here’s one FTSE 250 idea I spotted last week that could be interesting for investors to consider.
Worthy of interest
I’m referring to ITV (LSE:ITV). It’s a well-known UK-based media company operating in three main overlapping business areas: broadcasting, content production, and streaming.
Over the past year, the share price is down a modest 6%. The dividend yield is 7.1%, over double the index average. ITV has a few different avenues where it makes money. A large portion of its income comes from selling advertising across its free‐to‐air channels and on digital/streaming platforms. For example, the full-year results from last year showed its total advertising revenue grew 2% to £1.8bn, with digital ad revenue growing around 15% to £482m (making up 26% of total ad revenues).
It also makes money from ITV Studios, from the content slate it produces, as well as other subscription and direct consumer revenue.
Why the future looks bright
There are several reasons why I think income investors might be interested, based on the fundamental outlook for the company. A big area relates to the growth in the digital and streaming space. Digital advertising is growing much faster than traditional broadcast, which means it could become a much larger revenue driver in the coming years.
Historically, ITV was more heavily reliant on UK broadcast advertising (which is cyclical and vulnerable). The shift toward streaming and higher-margin segments means less exposure to any one weak area.
Besides this area, ITV Studios is well placed to expand. Shows can be made in the UK and then sold internationally to other streaming platforms. After all, many similar companies are looking to purchase high-quality content. Even within the broader group, the fact that ITV can produce content and then distribute and show it on the existing platform is a big advantage over some smaller competitors.
The bottom line
If the business can grow via digital and self-produced content, I believe it can translate to higher revenue and profit. The total dividend for the past few years has held at 5p, but that’s mainly because earnings per share haven’t really jumped. If earnings get a boost as the outlook for growth becomes a reality, I think the dividend will be hiked.
One risk is that both viewership and the subsequent desire to spend on advertising are cyclical and volatile. This means that ad spending and revenue are hard to forecast.
With a price-to-earnings ratio of 7.24 and a generous dividend yield, I think ITV has the potential to offer steady income without having the risk of the share price being overvalued any time soon.
