Habitual Fool readers will know that I’m a big fan of two kinds of shares. First, I love investing in value shares (that is, stocks trading on low valuations). Second, I like to own shares with high dividend yields. And my ITV (LSE: ITV) shares seem to fit the bill on both counts.
ITV shares had a tough 2022
At end-2021, the ITV share price closed at 110.55p. And on 10 and 11 February 2022, the stock hit its 2022 intra-day high of 124p. So far, so good. Alas, it was pretty much all downhill for this FTSE 250 share after that.
From mid-February to late September, ITV shares were practically in freefall. They bottomed out at their 2022 low of 53.97p on 29 September, having crashed by more than half (-56.5%) from 2022’s high.
Here’s how the shares have performed over six different timescales:
| Current price | 89.12p |
| One day | +0.8% |
| Five days | +3.1% |
| One month | +7.8% |
| Six months | +45.6% |
| One year | -15.6% |
| Five years | -42.1% |
At the current share price of 89.12p, ITV is valued at £3.6bn. This makes it one of the largest companies in the FTSE 250. However, in its prime, the group was a member of the elite FTSE 100 index.
While ITV shares have rebounded by almost half over the past six months, they’ve disappointed over longer periods. In the past year, they’ve lost almost a sixth of their value. Meanwhile, over the past half-decade, they’ve come close to halving. Ouch.
We own ITV stock
For the record, my wife bought ITV shares for our family portfolio in late June 2022, paying 68.7p a share. Based on the current share price, we are sitting on a paper profit of 29.8%. But I have high hopes of further capital gains to come.
To be frank, ITV’s current valuation looks far too modest to me. After all, it is the UK’s leading terrestrial commercial broadcaster, winning big audiences for shows such as Love Island. In addition, the group is a leading content provider for media companies globally. Plus it’s been around since 1955, so it’s a well-known brand.
This share looks too cheap to me
Based on their current fundamentals, ITV shares look like a big bargain to me — not least as a takeover target for a much larger media group.
First, they trade on a lowly price-to-earnings ratio of 7.6, for an earnings yield of 13.1%. That’s considerably cheaper than the FTSE 350 index and the wider London market.
Second, they offer a market-beating dividend yield of 5.6% a year. That’s more than two percentage points above the sub-3.5% yearly cash yield on offer from the FTSE 350 index.
Third, ITV’s dividend is covered 2.3 times by earnings. That’s a decent margin of safety, even though ITV’s earnings are forecast to slip this year.
Of course, ITV faces its own set of legacy problems. It’s a linear broadcaster in a streaming world. It relies heavily on advertising revenues, but the UK is heading into recession. And its older audience is gradually shrinking.
Even so, my wife and I are happy to hold our cheap ITV shares for now. And we may buy even more after the new tax year starts on 6 April!
