The ITV share price is climbing again. Here’s why I’d buy

The ITV (LSE: ITV) share price hit a 52-week low of 54p on 29 September. But since then, it’s gained 27%. We need to see that against the background of a 12-month fall of 35%, mind.

The decline all started with ITV’s last set of full-year results, released back in March. I saw the big drop at the time as quite a shock, because I thought the figures looked pretty reasonable. But the market had turned away from the TV content provider, and the shares continued on their slow decline.

Valuation

But when I look at the FTSE 250 stock’s valuation today, I reckon I see a share price that’s been pushed down too far. In fact, I think ITV could be one of the mid-cap index’s most attractive dividend investments right now.

Forecasts suggest a dividend yield of a whopping 7.5% from ITV shares this year, with analysts expecting it to reach 8% by 2024. It’s risky relying on forecasts, for sure. But we’re looking at a stock on a forecast price-to-earnings (P/E) multiple of only around six here. That looks like a low valuation to me, with a good bit of safety margin built in.

Dividend threats

When I see high-dividend shares trading at what look like low valuations, I immediately suspect one of two things. First is that the company’s dividends are only weakly covered by earnings, which can put them under threat.

But I don’t see a problem there. After a few tough years, which saw the ITV dividend slashed in 2019, last year brought a return to earnings growth. And the 2021 dividend was covered more than four times by earnings.

Debt can be a dividend killer too. And at the halfway point at 30 June, ITV’s net debt reached £615m, up 32% from 12 months prior. But the company reported a net debt-to-adjusted EBITDA leverage of only 0.7 times, which looks fine to me.

Advertising

Still, that does point to a potential weakness. We appear to be heading into a recession, with inflation up around 10% and interest rates rising while discretionary spend is falling. And in conditions like those, companies tend to rein-in their advertising spend.

ITV cautioned us about that very thing, but said it expects nine-month advertising revenue to be broadly flat. And we have the football World Cup coming in the final quarter, which should hopefully provide a bit of a boost.

Weakness

I think we could well see another year of more ITV share price weakness, at least while economic pressures persist and ad revenues come under scrutiny. And investors do seem to have gone off the traditional TV business.

But I see ITV as a classic value share, with tasty long-term dividend prospects. So would I buy? If I had enough cash to invest in all the dividend shares that I think are undervalued today, yes, for sure.

There are quite a few of them though, and I simply can’t buy them all. But ITV is on my list of candidates for my next purchase.