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As an old-school value/dividend/income investor, I’m constantly on the lookout for new high-yielding stocks to add to my family’s portfolio. Often, I focus my searches on blue-chip FTSE 100 index. Then again, I’m not averse to taking a dip in mid-caps as well FTSE 250 index for value.
For example, here’s a FTSE 250 dividend stock I’d happily buy today (when I have some spare cash) for its impressive cash yield — and for its potential for future capital gains.
For the record, I already have ITV (LSE: ITV) shares in my family portfolio. My wife bought some shares at the end of June 2022 at a total price of 68.7pa per share. But I’ll happily buy more at current prices. here’s why.
At the current share price of 74.6p, terrestrial broadcaster and content producer ITV is valued at £3bn. At the end of 2019, it had doubled in value, making it a proud member of the FTSE 100.
Here’s how the stock has performed over seven different periods:
year to date
In one year, this share has hardly decreased. However, in just over half a decade, the stock has lost more than half its value, diving nearly 56%. But this tells me it may be headed back into bargain-bin territory.
2023 could be tough for ITV
Of course, as the UK’s largest terrestrial commercial TV operator, ITV’s revenue is driven by advertising spend. And right now, big companies are cutting their advertising spending, partly because of the cost-of-living crisis. So I fully expect less earnings for ITV this year than in 2022.
However, in the long term, I see a very bright future for this firm. For example, it is worth noting that shares touched a 52-week high of 96.62p on 9 February amid rumors of a bid approach for the entire business. But nothing came of this ‘word on the street’.
Hitting its 52-week low on 29 September 2022, the stock briefly fell below 54p before bouncing back. But even after a strong rally (it’s up 38.2% from this low), it still looks cheap to me.
Currently, the stock trades at just 7.1 times historical earnings ratings. This translates to an earnings yield of 14.2% — nearly double that of the FTSE 100.
In addition, ITV’s dividend yield of 6.7% per annum is three percentage points higher than Footsie’s annual cash yield of 3.7%. Even better, this payout is covered by 2.1 times trailing earnings — a comfortable cushion against any downturn.
In short, my wife and I will hold firmly to our ITV shares for the cash-generating potential. What’s more, if the price continues to weaken, we can buy more when we get cash profits in July!
The post 1 FTSE 250 stock I’d buy for big dividends appeared first on The Motley Fool UK.
Cliff D’Arcy has a financial interest in ITV shares. The Motley Fool UK recommends ITV. The views expressed on the companies mentioned in this article are those of the author 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 variety of insights makes us better investors.
Motley Fool UK 2023