At a bargain-basement price now, is it time for me to buy this 8%-yielding FTSE 250 media stock?

Shares in this FTSE 250 broadcasting firm continued their recent decline after the latest results release, leaving them looking an absolute bargain to me.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Person holding magnifying glass over important document, reading the small print

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Shares in FTSE 250 broadcaster ITV (LSE: ITV) fell 13% on 7 November when it released its nine-month and Q3 results.

This is an eye-catching drop that tends to be good for newspaper headlines. However, in my view, it reflects more the sub-£1 price of the stock than any signal of disaster to come.

That said, it is important to remember when buying such a stock that each penny represents a high percentage of its value. On this basis, more price volatility risk is inherent in such a share than in a higher-priced stock.

Should you invest £1,000 in ITV right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if ITV made the list?

See the 6 stocks

The results don’t look that bad to me

The reality of the results was that its nine-month revenue fell to £2.74bn from £2.98bn year on year. However, the company had already flagged earlier this year that such a decline would happen. This was mainly attributable to £80m of income being delayed from 2024 to 2025 because of the 2023 US writers’ and actors’ strikes.

Despite this, there were several positive factors in the numbers for me. For a start, the firm said ITV Studios remains on track to generate record earnings for the full year. It also projects that this will be achieved at a margin of 13%-15%. And it added that ITV Studios is expected to achieve organic revenue growth of 5% a year to end-2026.

Positive as well for me is that its ITVX digital streaming business continued to perform strongly.  It saw 14% growth in streaming hours and 15% growth in digital advertising revenue over the nine-month reporting period.

A key risk to these growth figures in my view is the cut-throat competition in the sector. Another is further unexpected events in the entertainment industry, such as another writers’ and actors’ strike.

A big dividend yield on offer

In 2023, ITV paid a dividend of 5p, which yields 8% on the current 62p share price. Analysts forecast that the same will be paid this year and next year and will rise to 5.18p in 2026. The latter would push the yield to 8.4% on the present share price.

So, £10,000 invested in 8%-yielding ITV shares would generate £12,196 in payouts after 10 years if the dividends were ‘compounded’.

Over 30 years on the same basis, this would rise to £99,357. By then the total holding valued at £109,357 would pay £8,749 a year in dividend income.

Will I buy the stock?

The forecast yield is very tempting for me, as I focus on stocks that pay a 7%+ return. I aim to increasingly live off the dividends while reducing my weekly workload.

Additionally, the shares look 76% undervalued to me on a discounted cash flow basis. This implies a fair value for the stock of £2.58, although they might go higher or lower than that, given market unpredictability.

Created with Highcharts 11.4.3ITV PriceZoom1M3M6MYTD1Y5Y10YALL14 Nov 201914 Nov 2024Zoom ▾Jan '20Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '24Jul '242020202020212021202220222023202320242024www.fool.co.uk

This level of under-pricing reduces the chance of any dividend gains being erased by share price losses, in my experience. And it increases the chance of a profit being made over time on a share price rise.

That said, aged over 50 now I avoid stocks priced under £1, given the greater risk-per-penny involved than higher-priced shares. However, if I were at an earlier stage of the investment cycle, I would buy ITV shares very soon.

Investing in AI: 3 Stocks with Huge Potential!

🤖 Are you fascinated by the potential of AI? 🤖

Imagine investing in cutting-edge technology just once, then watching as it evolves and grows, transforming industries and potentially even yielding substantial returns.

If the idea of being part of the AI revolution excites you, along with the prospect of significant potential gains on your initial investment…

Then you won't want to miss this special report inside Motley Fool Share Advisor – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And today, we're giving you exclusive access to ONE of these top AI stock picks, absolutely free!

Get your free AI stock pick

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Simon Watkins 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.

More on Investing Articles

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

10 Warren Buffett ideas every investor should remember

Christopher Ruane shares 10 simple but powerful lessons from the career of billionaire stock picker Warren Buffett that he applies…

Read more »

Tesla building with tesla logo and two teslas in front
Investing Articles

£10,000 invested in Tesla stock when Elon Musk endorsed Donald Trump is now worth…

Elon Musk's alliance with President Trump has split opinion among investors in Tesla stock after a rollercoaster ride for the…

Read more »

Thoughtful man using his phone while riding on a train and looking through the window
Investing Articles

This S&P 500 stock looks crazily cheap and has a 5% dividend yield

After a roller-coaster start to 2025, the S&P 500 is just 5% short of its record high. Meanwhile, this lowly…

Read more »

piggy bank, searching with binoculars
Investing Articles

At 6.2x forward earnings, this FTSE income stock could make investors very happy

This retailer makes the vast majority of its sales in physical stores and its earnings reports make no mention of…

Read more »

A graph made of neon tubes in a room
Investing Articles

Up 250 times since 2015, but are Nvidia shares ‘cheap’?

Nvidia shares have rocketed for years, but on one metric at least, the stock might still be attractively priced, according…

Read more »

Illustration of flames over a black background
Investing Articles

Up 25% in a year plus an 8.5% yield – this ultra-high income stock is on fire!

When Harvey Jones bought shares in FTSE 100 income stock Phoenix Group Holdings he was mostly chasing its ultra-high yield.…

Read more »

Artillery rocket system aimed to the sky and soldiers at sunset.
Investing Articles

£10,000 investing in the top FTSE 100 growth stocks last year is now worth…

The FTSE 100's climbing ever closer to a new record high but the top stocks aren't necessarily the best buys.…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

Why this top consumer stock is one for passive income investors to consider

The Coca-Cola HBC share price has been climbing higher in 2025. But is it still flying under the radar as…

Read more »