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Like bright yellow sale stickers in shops, shares with high dividend yields tend to catch the eye. ITV (LSE:ITV) is one from the FTSE 250 that always sticks out to me.
Perhaps it’s nostalgia, as I’m old enough to remember classics like Heartbeat and A Touch of Frost. As a kid, I would often stay over at my grandparents on a Saturday night, when the likes of Gladiators and Stars in Their Eyes would be on the telly on channel three (ie, ITV).
All that has changed, of course. If I showed my daughter (who is about the same age now as I was back then) the ITV schedule nowadays, she would probably not recognise much.
In contrast, if I asked her if she has heard of Netflix‘s Stranger Things or Wednesday, she would look at me like I was a dummy. Right now, she’s obsessed with the animated movie KPop Demon Hunters. Was that made by or available on ITV? No, it was Netflix, again.
Of course, one might question whether this is a relevant — or even fair — comparison. But I think it is. If ITV has no cultural relevance for younger generations (who now spend far more time consuming content from YouTube, Netflix, and social media), where does that leave ITV long term?
Tales of two businesses
Now at 82p, the share price is down nearly 70% in a decade.
To my mind, ITV is one of those cases where investors like one part of the business but not so much the other. This prevents enough people from investing, resulting in the disappointing long-term performance above.
It reminds me of WH Smith, which until recently had both high street and travel retail businesses. The former (which it has now sold) was in long-term decline while the latter is seen as having long-term growth potential (due to rising global travel).
Pets at Home is another example, with a growing vets business but a struggling retail operation.
In ITV’s case, there’s the legacy TV broadcasting side and the Studios division. The former is in decline. For evidence, consider a recent TouchPoints survey, which found that adult Brits now spend more time on phones than watching TV. And on phones, they’re not watching films/series too much.
However, ITV’s Studios can benefit from this fractured media landscape. Because as well as producing content for ITV, it also makes quality content for other streamers, including Netflix, Amazon, and Disney.
This gives Studios secular long-term growth potential.
Potential sale
Therefore, I do think ITV can carry on paying regular dividends. It makes money from linear TV ads, digital streaming ads through ITVX, and the Studios content side.
So, with the stock trading at just 9.8 times forward earnings and carrying a 6.1% dividend yield, I can see the temptation here.
There have also been rumours recently that a sale of its broadcasting business might happen. A concrete bid could send the stock surging.
Passive income
When I look at the dividend forecast though, I’m less tempted. Analysts forecast no future growth in the payout, and perhaps even a slight decline.
Weighing things up, I’m going to keep looking for other high-yield passive income opportunities. There are a few about right now.
