The Motley Fool

This FTSE 100 dividend stock has dived 10% today. Should holders panic?

Shares in top-tier-listed media company ITV (LSE: ITV) were sharply lower in early trading this morning following the release of its latest set of full-year numbers.

Should those already holding the stock be worried? I don’t believe so.

Claim your FREE copy of The Motley Fool’s Bear Market Survival Guide.

Global stock markets may be reeling from the coronavirus, but you don’t have to face this down market alone. Help yourself to a FREE copy of The Motley Fool’s Bear Market Survival Guide and discover the five steps you can take right now to try and bolster your portfolio… including how you can aim to turn today’s market uncertainty to your advantage. Click here to claim your FREE copy now!

Ahead of expectations

To be clear, trading over 2019 was far from terrible. Indeed, today’s figures were ahead of even ITV’s own expectations. 

Thanks to a burst of growth in the second half of the financial year, total external revenue rose 3% to £3.3bn. And while total advertising revenue fell 1.5%, this result was better than that originally forecast. 

Away from the headline figures, there was also evidence to back up CEO Carolyn McCall’s claim that the company was developing into “a stronger, more diversified and structurally sound business”. Total revenue from its Studios division grew 9% with online revenue jumping 21%. The FTSE 100 member had also seen decent demand for its premium subscription service ITV Hub+ and recently-launched Britbox collaboration with the BBC. 

There were positives on the financial side of things too. In addition to making £25m of cost savings (£5m ahead of that targeted), net debt also fell to £804m — down from £927m at the end of 2018. That’s far less of a burden than that faced by another company I’ve looked at today

So, why are shares down?

It’s all down to the (understandably foggy) outlook. 

Despite forecasting a 2% rise in total advertising revenue over the first quarter of its financial year, ITV is now expecting a sharp drop in Q2 following the decision by those firms in the travel industry to defer their contracts for a while due to the coronavirus outbreak. As a result, total advertising revenue is expected to tumble 10% in April.

Of course, the numbers could turn out to be better or worse depending on what happens over the next few days and weeks. Like many companies reporting recently, ITV remarked that estimating the full impact of the coronavirus outbreak on business was tricky but that it would “continue to monitor the situation closely“.

Don’t panic

Clearly, today’s share price drop is unlikely to bring cheer to those already holding the shares. Personally, I think they should sit tight

For one, ITV still expects (for now, at least) to grow revenue in 2020. It’s also predicting that its Studios business will grow steadily over the medium term and that “double-digit” online growth will also be achieved.

Then there are the dividends to consider. Today, ITV confirmed that it would pay out 8p per share to holders for the 2019 financial year, giving the stock a trailing yield of 7.7% after taking today’s price fall into account. That’s certainly a lot better than the 1.31% you’d get from even the top-paying Cash ISA right now. While we can’t be certain on how the company will perform in the near term, the fact that dividends look fairly well covered by profits suggests a cut looks pretty unlikely for now.

Attempting to value shares might be even tougher than usual given the current state of affairs, but a forecast price-to-earnings (P/E) ratio of less than 9 suggests ITV offers great value at the moment. Having once been a holder of the stock myself, I may well take a position again if the selling pressure continues.

A top income share with a juicy 5% forecast dividend yield

Income-seeking investors like you won’t want to miss out on this timely opportunity…

Here’s your chance to discover exactly what has got our Motley Fool UK analyst all fired up about this out-of-favour business that’s throwing off gobs of cash!

But here’s the really exciting part…

Our analyst is predicting there’s potential for this company’s market value to soar by at least 50% over the next few years...

He even anticipates that the dividend could grow nicely too — as this much-loved household brand continues to rapidly expand its online business — and reinvent itself for the digital age.

With shares still changing hands at what he believes is an undemanding valuation, now could be the ideal time for patient, income-seeking investors to start building a long-term holding.

Click here to claim your copy of this special report now — and we’ll tell you the name of this Top Income Share… free of charge!

Paul Summers 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.