ITV (LSE: ITV) shares dropped 15% in 2023, closing the year at 63p. Now at 57p, this year’s performance has been weak too. However, all things equal, there can be a silver lining to a falling share price: a higher dividend yield. And this could lead to a more attractive second income for investors.
Here, I’ll look at how much I’d need to invest in this television stock to try and secure two grand of annual passive income.
The company at a glance
ITV operates across three main business segments:
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- Broadcasting — This includes ITV’s free-to-air channels in the UK. It encompasses advertising revenues and other related services.
- Studios — ITV Studios is responsible for the production and distribution of television programmes, both in the UK and internationally.
- Online streaming — The firm is growing its ad-supported ITVX platform, which offers live streaming and catch-up services.
Before the internet, newspapers, radio, and particularly terrestrial TV were the places to advertise. ITV commanded huge audiences while the forerunner of ITV Studios successfully exported hit shows like Coronation Street, Prime Suspect, and Poirot to international markets.
These foreign channels weren’t really rivals, as each country still predominantly had a domestic audience.
Intense competition
Clearly, it would have been better for ITV if the internet — particularly Netflix — never happened. The ability to stream things on-demand for very little cost has been incredibly disruptive to ITV’s core broadcasting business model.
Soap audiences, for example, are down 42% since 2014. And worried ITV bosses are reportedly considering whether to just release its soap dramas directly online. This could further accelerate the decline of its traditional linear TV channels, which are still profitable for now.
One bright spot here though is its thriving ITV Studios business. This produces high-quality content for ITV but also sells it globally to other broadcasters and platforms.
While ad revenue has been weak recently, this division grew 8% organically between January 2022 and June 2023. It’s expected to grow revenue at least 5% per year to 2026.
Looking ahead, though, the company’s streaming platform faces huge competition for eyeballs from the likes of Amazon Prime, YouTube, Netflix, Apple TV, Disney+, and more. This is formidable competition.
Passive income generation
These challenges are reflected in ITV’s share price, which is lower today than it was in the 1990s (i.e., pre-internet). Indeed, it’s down 56% since 2019!
One consequence of this decline is a very high dividend yield of 8.6%. This means that I could hope to bag £2,000 of annual passive income by purchasing 40,877 ITV shares. They would cost me around £23,300.
At first glance, that’s a very attractive return. But could I really bank on this income? I mean, ITV’s dividend record has been a bit all over the place in recent years. In fact, the dividend is less today (5p per share) than before the pandemic (8p per share).
The current payout is covered 1.7 times by anticipated earnings, which is a decent level of dividend coverage and suggests it is sustainable for now. But the future is very uncertain, to my mind.
Therefore, I think I’ll just stick to watching ITV rather than investing in its shares. I reckon there are far safer dividend stocks about to generate passive income right now.
