FTSE 250 media stock ITV (LSE: ITV) is a high-yield play that looks significantly undervalued. This is because I think the market remains hung up on the old‑school ‘broadcast TV is dying’ narrative.
But that is only half the story — and increasingly the wrong half, as recent results highlight, in my view.
So, what sort of returns could investors be looking at here?
Growth momentum?
A risk to ITV’s earnings — the key driver for share prices and dividends — is intense competition from terrestrial and digital media firms. However, analysts forecast its earnings will grow by 4% a year to end-2028.
ITV’s 2025 numbers showed Studios revenue rose 5% year on year to £2.13bn, while digital revenue climbed 10% to £614m.
Tight cost control kept adjusted earnings before interest, taxes, and amortisation broadly steady at £534m. And the group generated a hefty £187m of free cash flow.
Overall, it underlines a business shifting towards higher‑quality, more durable revenue streams, I believe.
How much income can be made?
ITV paid a dividend in 2025 of 5p — the same as in each of the previous three years. This gives a yield on the present 83p share price of 6% — well ahead of the 3.4% FTSE 250 average.
That said, analysts forecast the payout will rise to 5.1p next year, and 5.4p in 2028, generating respective 6.1%, and 6.5% yields.
So, investors considering a £20,000 stake in the firm could make £18,244 in dividends after 10 years. This could rise to £119,836 after 30 years, although yields can change according to annual payouts and share prices.
The numbers reflect the forecast 6.5% as an average, and the dividends being reinvested into the stock. This allows for the supercharging effect of ‘dividend compounding’ to work its magic.
At the end of 30 years, the holding would be worth £139,836, including the initial £20,000. And this would pay an annual income through dividends of £9,089!
Share price gains too?
Share prices tend to trade to their ‘fair value’ over time, with this representing the true worth of the underlying business. Discounted cash flow (DCF) analysis projects a company’s future cash flows and then discounts them back to today to ascertain this fair value.
The inputs used in other DCF modelling may produce more bearish results than mine. However, my modelling for ITV — using a discount rate of 7.5%, among other inputs — suggests the stock is 28% undervalued at its current 83p price.
That implies a fair value of £1.15. And this suggests a potentially strong buying opportunity to consider today if those DCF assumptions hold good.
My investment view
Aged over 50, I am in the later part of my 30-year investment cycle. This commonly starts with first investments around the age of 20 and ends in early retirement options around my age.
Because of that, I have lowered my risk tolerance, which now precludes buying stocks under £1. The lower a share’s price, the higher the price volatility.
Consequently, ITV is not for me, although I have my eye on other deeply-discounted high-yield stocks.
However, I think it merits the attention of investors at an earlier stage of their investment cycles and those who are broadly less risk-averse.
