At a bargain-basement value now, is it time for me to purchase this 8%-yielding FTSE 250 media inventory?

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

That is an eye catching drop that tends to be good for newspaper headlines. Nevertheless, for my part, it displays extra the sub-£1 value of the inventory than any sign of catastrophe to return.

That stated, you will need to bear in mind when shopping for such a inventory that every penny represents a excessive share of its worth. On this foundation, extra value volatility danger is inherent in such a share than in a higher-priced inventory.

The outcomes don’t look that unhealthy to me

The truth of the outcomes was that its nine-month income fell to £2.74bn from £2.98bn yr on yr. Nevertheless, the corporate had already flagged earlier this yr that such a decline would occur. This was primarily attributable to £80m of revenue being delayed from 2024 to 2025 due to the 2023 US writers’ and actors’ strikes.

Regardless of this, there have been a number of optimistic elements within the numbers for me. For a begin, the agency stated ITV Studios stays on observe to generate report earnings for the complete yr. It additionally tasks that this shall be achieved at a margin of 13%-15%. And it added that ITV Studios is anticipated to attain natural income progress of 5% a yr to end-2026.

Constructive as properly for me is that its ITVX digital streaming enterprise continued to carry out strongly.  It noticed 14% progress in streaming hours and 15% progress in digital promoting income over the nine-month reporting interval.

A key danger to those progress figures for my part is the cut-throat competitors within the sector. One other is additional sudden occasions within the leisure trade, resembling one other writers’ and actors’ strike.

An enormous dividend yield on provide

In 2023, ITV paid a dividend of 5p, which yields 8% on the present 62p share value. Analysts forecast that the identical shall be paid this yr and subsequent yr and can rise to five.18p in 2026. The latter would push the yield to eight.4% on the current share value.

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

Over 30 years on the identical foundation, this is able to rise to £99,357. By then the overall holding valued at £109,357 would pay £8,749 a yr in dividend revenue.

Will I purchase the inventory?

The forecast yield could be very tempting for me, as I deal with shares that pay a 7%+ return. I purpose to more and more stay off the dividends whereas decreasing my weekly workload.

Moreover, the shares look 76% undervalued to me on a discounted money circulate foundation. This means a good worth for the inventory of £2.58, though they could go increased or decrease than that, given market unpredictability.

This degree of under-pricing reduces the possibility of any dividend features being erased by share value losses, in my expertise. And it will increase the possibility of a revenue being revamped time on a share value rise.

That stated, aged over 50 now I keep away from shares priced beneath £1, given the better risk-per-penny concerned than higher-priced shares. Nevertheless, if I have been at an earlier stage of the funding cycle, I’d purchase ITV shares very quickly.