SharesShares in FTSE 100 income champion ITV (LSE: ITV) plunged in this year’s stock market crash. From a high of nearly 160p at the beginning of the year, by the beginning of April, the stock was changing hands for around 50p.
Investor sentiment towards the broadcaster plunged as the company slashed its outlook for 2020, and cancelled its dividend. Six months on, and it looks as if these issues are now in the rearview mirror.
As such, it seems to me that outlook for the FTSE 100 company in 2021 is bright.
Stock market crash bargain
ITV relies on advertising for the majority of its revenue. At the beginning of the pandemic, advertising revenue plunged as companies pulled spending to preserve cash resources. As a result, the firm’s advertising income was cut in half.
However, over the past few months, it seems that the market has recovered. That suggests ITV could see a positive trading environment for the last few months of the year.
Unfortunately, the uptick is unlikely to offset the carnage in the first half of 2020. On that basis, City analysts are forecasting a 30% decline in group net profit for 2020 as a whole. Still, that’s better than many analysts were initially expecting. Much of this slump was accounted for in the share price during the stock market crash.
What’s more, analysts believe there’s a good chance the company will be able to restore its dividend shortly.
FTSE 100 income stock
ITV’s recovery is already gaining traction, and analysts are expecting a further improvement next year. The City is forecasting a 20% increase in profits for 2021. This should allow the enterprise to distribute 5.3p per share in dividends for the year. After the stock market crash, that implies the asset could provide investors with a dividend yield of 7.8% next year.
Of course, these are only estimates at present. The company may or may not hit these targets. Only time will tell. Nevertheless, I think they clearly illustrate the firm’s dividend potential for 2021. And even if ITV only manages half of the dividend projected by analysts, the stock could still provide investors with a market-beating 3.9% dividend yield.
Therefore, I’m optimistic about the outlook for the ITV share price. The organisation has had a rough 2020, but it should still manage to eke out a substantial profit for the year. Further, the challenges of 2020 could actually work out in the company’s favour.
There’s been a substantial increase in the number of customers using the group’s paid-for subscription services over the past 12 months. The group has long been criticised for missing out on the streaming boom, but it now looks as if this is starting to change.
Let’s suppose ITV can maintain this momentum into 2021. In that case, I reckon the group has the potential to reinforce and develop its position in the media landscape, which could lead to more significant profit growth in the years ahead. As such, one may benefit from buying the FTSE 100 company today while it continues to trade at a low level after the stock market crash.
The post Stock market crash: I’d buy this FTSE 100 income stock for 2021 appeared first on The Motley Fool UK.
Rupert Hargreaves owns shares in ITV. The Motley Fool UK has recommended 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.
Motley Fool UK 2020