Trying to predict what’s going to happen next week in the stock market is hard. Trying to predict a dividend forecast for a stock in 2025 is even harder. However, there are analyst consensus numbers out there that are based on a lot of careful research. A well-known media company from the FTSE 250 has caught my eye, with some interesting potential.
Straight to the details
The company I’m referring to is ITV (LSE:ITV). The broadcaster and content creator has suffered a 22% drop in its share price over the past year. However, the current dividend yield is 8.24% and is the highest it has been in the past year.
Usually, ITV pays out two dividends to shareholders each year. The larger of the two gets announced in March, coinciding with the release of the financial results. The second interim payment usually gets announced at the end of July. For reference, the 2023 payments were 3.3p and 1.7p.
The forecasts for this year and next show growth. The estimates for this year are 3.3p and 2p and for 2025 they are 3.5p and 2p. Given the current share price of 59.7p, this would mean a dividend yield of 8.87% this year and 9.21% next year.
Of course, the future share price might be higher or lower than the current price. This could act to either decrease or increase the yield.
Not all good news
I do have some concerns about ITV going forward. Part of the reason for the share price fall over the past year was highlighted by the half-year results from the summer. Profit before tax was £118m, down from the £301m from the same period last year. Yet it decided to match the dividend per share payment of 1.7p from the previous year.
The business does have good cash flow and reserves, meaning it can pay out dividends even if it makes a loss. However, this can’t keep going forever. So the risk is that if the company underperforms financially in coming years but raises the dividend, it could be in trouble.
The dividend cover ratio is an indication of how well earnings cover the dividend payments from the past year. It’s at 1.9, which is comfortably above the level of 1. So from that angle there doesn’t seem to be any immediate worry, but this is factoring in earnings from the past.
Putting it all together
The reality is (like most stocks) that ITV is a classic risk-to-reward decision. It’s risky going forward with declining UK advertising revenue and the push to digital. Yet the juicy 9% potential yield is a large reward for investors who decide to buy the stock now.
I’m considering purchasing a small number of ITV shares to dip my toe in the water and see how the full-year results come out later in Q1.
