Would the ITV share price and this dividend stock fit nicely inside your stocks and shares ISA?

It has been a dismal start to the day for Daily Mail & General Trust(LSE: DMGT), down 11% this morning. That comes after posting a 16% drop in adjusted profit before tax to £182m, and talked of “challenging trading conditions” in today’s full-year results. 

Snail Mail

The fall continues a steady slide for the group, whose share price topped 1,000p just under five years ago, but trades at 614p at time of writing. These are tough times for media companies generally, and this one is no exception, despite owning a diversified portfolio of global media companies and the best read English language newspaper site in the world, MailOnline, whose digital advertising revenues now exceeds the Daily Mail’s print ad revenues.

The group has a stronger financial position with net cash of £233m, against net debt of £464m at the start of the year, after realising £642m from disposing of its stake in ZPG plc. The drop in adjusted profits, and a 23% decline in adjusted earnings per share to 42.2p, reflects its reduced portfolio of businesses. The group reported stable underlying revenue and said performance was in line with expectations, so it wasn’t all bad.

B2B or not 2B

It’s business-to-business (B2B) division even posted a 3% rise in underlying revenues, with margin improvement. But its consumer media operation has challenges, with underlying revenues falling by 4%, while margins thinned from 11% to 10%. At least the full-year dividend rose 3% to 23.3p, which leaves Daily Mail General & Trust yielding 3.4%, with cover of 1.7.

Worryingly, analysts are forecasting an 8% drop in earnings next year. With the stock trading at 17.6 times earnings I’m not tempted to buy, despite CEO Paul Zwillenberg’s claim that its strategy should deliver consistent earnings growth and sustainable annual real dividend growth. It was a falling knife a year ago, and it still is.

On repeat

I wouldn’t describe ITV(LSE: ITV) as a falling knife, but it isn’t far off. Its stock is down 43% over three years, and has fallen 7% in the past three months. A disappointing trading statement in November didn’t help.

2018 wasn’t looking too bad, with total advertising up 2%, external revenues up 6%, ITV Studios revenues up 10%, and online revenues up 43%. Management also boasted of a “strong balance sheet and healthy liquidity.” But the results were overshadowed by warnings of a fourth-quarter slowdown as Brexit uncertainty grew, with revenues likely to fall 3%. December will definitely not be magic with a 6-8% drop, which means total advertising is expected to be broadly flat over the full year.

At least its cheap

Looking forward, City analysts reckon ITV is staring at a 6% drop in earnings per share growth in 2018, then another 4% in 2019. That worries me, but it doesn’t worry Kevin Godbold, who reckons its shares are worth exploring while they are out of favour.

I also like buying good companies after a bad run, and ITV is certainly more tempting than Daily Mail General & Trust as it’s available at a discounted price of just 10 times forecast earnings. The yield is also higher at 5.3%, with cover of 1.9. ITV may also enjoy a Brexit bounce, if we get one.

Capital Gains

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harveyj has no position in any of the shares mentioned. 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.

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