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Why I see the ITV share price as a FTSE 100 dividend bargain

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With the FTSE 100 having shed 8% in the past three months, what should Foolish investors be doing? We surely shouldn’t be rushing to hit the Sell button, but instead looking for even better bargains that the sell-off is throwing us, shouldn’t we?

One thing that falling share prices do is push up dividend yields, and that can help us lock in better long-term income than we could otherwise obtain — as long as the companies aren’t in actual trouble and can keep paying their dividends.

So I’m looking for oversold FTSE 100 dividend bargains right now, and I reckon I see one in ITV (LSE: ITV) shares.

The ITV share price has fallen slightly further than the Footsie over three months, with a 9% drop. It’s also down 17% since a 2018 peak in July, and ITV stock has lost almost half of its value since the middle of 2015.

Short-term setbacks

The TV giant has had its problems, with advertising revenues slipping as the big spenders rein in on their discretionary outlays. And after several years of strong earnings growth, we saw a reversal last year with a 6% dip — and analysts are forecasting further declines of 4% this year, and 2% next.

But I see ITV’s rising dividend yields as an indicator that the sell-off is overdone. Forecast yields for this year and next are now reaching as high as 5.6% and 5.7%, respectively — and almost twice-covered by earnings.

The big question is whether such levels are sustainable, and interim net debt of £1.03bn does give me cause for concern. But the board did confirm dividends of at least 8p this year and next, in line with forecasts and justfied by “continued strong cash generation.” The board also “expects that over the medium term the dividend will grow broadly in line with earnings.”

I see no reason to doubt that, and ITV looks like one of the FTSE 100’s best dividend bargains to me right now.

A great company, cheap?

Weak third-quarter trading figures hit WPP (LSE: WPP) pretty hard, resulting in a share price fall of 18% in just three days. And that’s just the latest dip, as the advertising and media giant has seen its shares lose more than 50% of their value since February 2017.

The departure of founder and CEO Sir Martin Sorrell, under controversial circumstances, will have damaged market sentiment. And a whopping 32% EPS fall predicted for this year by the City’s analysts will have scared many away.

But at today’s share price, that big earnings fall would drop the P/E to only a little over eight. Perhaps, more tellingly, we’re looking at predicted dividend yields of a whopping 6.8% — and even at these forecast earnings levels, they’d still be covered around 1.8 times.

Clear strategy needed

Will new CEO Mark Read’s strategy include maintaining these high dividends? He’s said that the company has been resistant to change and needs to adapt, and that could cost money. But I also see a likelihood of potential cost savings through improvements in efficiency.

It will take a little time for details of the firm’s refocus to become clear, but I see that uncertainty as providing long-term investors with a buying opportunity. Those running scared could well turn out to have sold at precisely the worst time.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended ITV. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.