6%+ yield! Is the ITV share price still a possible long-term bargain?

Investors who bought shares in ITV (LSE: ITV) five years ago have done well. The ITV share price has moved up 33% during that period.

Meanwhile, a 6.2% dividend yield means that the passive income potential of owning the broadcaster’s share is attractive.

The business aims to maintain the annual dividend per share at its current level, or grow it. In practice, no dividend is ever guaranteed, so whether the juicy dividend is maintained in future will depend on business performance.

Still, although I see risks, I do see this as a share for investors to consider.

Strong dividend prospects

For starters, there is that dividend. The yield is well above the FTSE 250 average of 3.4%.

On one hand, operating profit of £33m in the first half of this year was not very impressive. That fell well short of even covering the roughly £60m cost of the proposed interim dividend.

But over the long run, ITV has proven it can generate sizeable free cash flows even though the exact amount in any given period can swing around a fair bit.

Management’s repeated commitment to the dividend strategy means that they should be highly motivated to try and deliver it. In my opinion, if the dividend was unexpectedly cut, the City would call for a change in leadership.

Lots of ongoing potential

I reckon ITV looks possibly undervalued, with a market capitalisation of £3bn and a share price in pennies. Indeed, I think it could turn out to be a long-term bargain.

With long experience in broadcasting and a strong market position, ITV is well-positioned to understand what viewers want. That means that while the proliferation of digital rivals remains a threat, it is one that an increasingly digitally focused ITV looks well-placed to navigate.

Indeed, the business expects to deliver at least £750m in digital revenues next year. In other words, digital media has helped ITV generate sizeable revenues, while also eating into some of its traditional business. I expect that trend to continue.

Many rivals need production facilities and often rent these. ITV has a broadcasting business of its own but it also has a sizeable division offering such services. It expects good growth in its studios revenue this year, thanks to deals with producers including Disney and Apple.

Not a well-loved share

Despite all that – and the solid share price performance over the past five years – the City continues to have doubts about ITV.

The company has never really recovered from a poorly received presentation three years ago setting out its medium-term strategy. The ITV share price is still 35% below where it stood in February 2022, before that presentation.

But I think its strong business assets and ongoing cash generation potential could justify a higher share price.

The post 6%+ yield! Is the ITV share price still a possible long-term bargain? appeared first on The Motley Fool UK.

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C Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended Apple and ITV. Views expressed on the companies mentioned in this article are those of the writer 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 diverse range of insights makes us better investors.

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