Will ITV’s Dividend Yield (LON: ITV) Continue To Tempt Investors?

Investors seeking income-generating stocks in the FTSE 250 index may be part of the reason behind ITV's share price (LON: ITV) performing so well on a YTD basis, but the longer term performance tells a slightly different story.

The broadcasting giant has declared a total dividend of 5p per share for the year 2023 which given the current share price of 78p, equates to a compelling yield of 6.4%. The price of ITV shares this year has gained 24.29%, and the turnaround from the 52 week lows of 55.49 hit in March is an impressive 40%.

This type of appreciation, backed by a solid dividend would bring massive appeal, but in previous years the stock has been in a bearish phase that has delivered little by way of appreciation. Looking at the 5 year chart below, it is clear to see that plenty of resistance seems to exist around the 80p mark, with a trading range between 60-80p largely holding firm, apart from the breakout in 2021 which came to an end.

For long term holders who have seen the stock decline in value by 39.4% over the past 5 years, a breakout of this channel will seem long overdue, but whether ITV can make that move in a changing entertainment climate is up for debate.

Looking ahead, analysts forecast a solid future for the ITV yield, predicting an increase to 6.5% in 2025 and further to 6.8% in 2026. Such prospects may be underpinned by ITV's fundamentals, indicating significant room for growth.

The strategy of dividend reinvestment, commonly known as dividend compounding, can help to amplify returns from consistent income paying shares and is one of the potential avenues being used by ITV holders when looking to re-enter the stock near support. This highlights one of the most powerful aspects of long-term investing: the snowball effect of compounding.

In terms of valuation, ITV has a Price/Earnings (P/E) ratio of just 7.3, markedly lower than the competitors' average of 13.9. The firm's financial performance has also been improving, with a commendable 17% increase in advertising revenues and an encouraging uptick in monthly active user numbers and streaming hours in the first half of the year. This indicates that the broadcaster is not only maintaining relevance but also showing growth amidst a challenging media landscape.

However, potential investors should be aware of the risks. ITV is operating in an intensely competitive broadcast media sector, with many firms pivoting to streaming services. The rise of established streaming giants is a significant challenge for traditional broadcasters like ITV.

As always, prudent investors should conduct their due diligence and consider their investment strategy in light of market trends and their personal financial goals.