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ITV – another one for the dividend muncher’s list

By Nigel Somerville | Sunday 15 April 2018

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

I’ve been wandering through my list of tasty-looking dividend plays identified HERE for further additions to my dividend muncher’s list. The first was BT (BT.A) which I bought at 225p and has since risen nicely to 241.5p. We’ll see how this plays out when its results are released early next month, but so far, so good. My second choice was Centrica (CAN), but I haven’t taken the plunge there yet. Working down my list of high yields, it has been too easy to rule out most of them but I alighted on ITV (ITV) and I wonder if now may prove a good time to climb on board.

Two of my ShareProphets colleagues have been keen on this stock, as you can see from HERE (Chris Bailey) and HERE (Malcolm Stacey), which means I am once again in the lucky position of claiming investment genius if this makes money and if not we know where to point the finger of blame!

But there are a few points which draw me to this stock, on top of the fine wise words of my colleagues.

Firstly, it seems to me that the stock fell sharply because there was no special dividend this year. Even so, the stock (based on last year’s payout) is ponying up a 5.41% yield. That seems a pretty good reward, if not quite in the league of BT and Centrica.

I note also that the PE is just 14, which marks it as fairly cheap – although for it to be truly cheap we would need to see growth. However, I also see from the ADVFN fundamentals page that its average PE is almost 20, although ADVFN doesn’t say how long a period that is measured over. But it does suggest that there may be room for the shares to rise quite sharply if things go well.

Borrowings came in at £982 million (non-current). After taking net current assets into account, we see the effective debt at £997 million. That’s the equivalent of just over two years’ profit, two years’ operational cashflow and around one sixth of the market capitalisation. It doesn’t seem like an enormously heavy debt burden.

And of course we are under (fairly) new management, which Chris Bailey has fallen in love with. I don’t have any starry eyes about the new boss, but I can’t help feeling that the last results will have seen a few things kitchen-sinked, as new managements like to do. So I suspect we should see some improvements going forward.

And there is a “strategic refresh” underway. One might hope for improvements from that too.

Finally, with the political situation over the weekend, I would not be surprised to see a bit of weakness on Monday across the FTSE100, which might offer a cheaper entry price. It is callous to say it, but I can’t imagine that the events of the weekend have hurt ITV’s viewing figures. And with a world cup to look forward to….

So ITV will be joining my dividend munchers team. 

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