Is FTSE 100 mega-yielder ITV simply too cheap to ignore?

With its share price down sharply over the past two years, shares of ITV (LSE: ITV) now trade at a knock-down valuation of 10.7 times forward earnings and offer investors a 4.6% dividend yield. The travails of broadcast TV are well known, but at this valuation is ITV simply too cheap to ignore?

Despite being one of the many millennials that rarely watch broadcast TV, I'm prone to believe ITV's current price may be too good to pass up. This is largely because the company has done very well over the past few years to lessen its reliance on cyclical advertising revenue by producing more of its content in-house to both use and sell overseas. In the first six months of 2018, of the group's £1,593m in revenue, a full £803m came from the studio division.

It's this studio division, which produces hits such as Poldark and Love Island, that is the likely future of the group as content producers are finding their properties in fast-increasing demand from distribution platforms like Netflix and Sky that can supply their customers with essentially limitless amounts of content.

This is clear in the group's H1 results, when revenue from the studio division leapt 16% while total advertising revenue grew a more modest 2%. And while the studio division offers lower margins, it clearly offers better long-term growth potential than broadcast TV and is far less cyclical.

But for now, the combination of high growth from the studio division and very high cash flow from the broadcast and online advertising division makes a compelling formula for investors. In H1 these two divisions generated £375m in EBITA, which was more than enough to support the high dividend payouts while keeping net debt low at £1,034m. With high cash flow and growth opportunities, I think long-term investors would do well to consider ITV and its huge dividends.

A retailer to bet on?

One even higher-yielding stock I've been eyeing is discount footwear retailer Shoe Zone (LSE: SHOE), which currently offers investors a 6.12% dividend yield. Of course, a yield this high suggests a certain amount of caution needs to be exercised. In Shoe Zone's case this is warranted since the group is being buffeted by general turmoil affecting the retail sector as well as rising import costs due to the weak pound.

Shoe Zone's management team, which incidentally owns just shy of half of the company's outstanding shares, has responded to these problems with a responsible strategy of maximising cash flow and slimming its estate down to just the most profitable stores. In the six months to March, this meant the group closed 10 small, unprofitable stores and opened four larger, much more profitable big box stores while maintaining a net cash balance sheet.

This helped drive revenue up 1.1% to £73.7m with pre-tax profits tripling to £1m. This worked out to earnings per share of 1.7p while management increased the interim dividend slightly to 3.5p. But this isn't a danger sign since the seasonal nature of its business means full-year earnings were comfortably covered by earnings last year and should be once again this year.

Certainly, the company doesn't have fantastic growth prospects but with its great dividend, even modest growth could mean the company's current valuation of 10.8 times forward earnings could be a relative bargain.

Buy-And-Hold Investing

Our top analysts have highlighted five shares in the FTSE 100 in our special free report "5 Shares To Retire On". To find out the names of the shares and the reasons behind their inclusion, simply click here to view it right away!

Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Netflix. 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.