Why the Games Workshop Group share price just shot up 11%

Strong trading results and an increased dividend are driving the Games Workshop share price higher today. Stephen Wright thinks it’s one to watch closely.

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Shares in Games Workshop Group (LSE:GAW) jumped 11% this morning. I happen to think that the stock is one of the best UK shares on the market. As as result, I’m constantly on the lookout for opportunities to invest into the company. Today’s price rise makes it less likely that I’ll get an opportunity any time soon, but I think there’s still plenty for me to keep an eye on with the Games Workshop Group share price.

Why are the shares up today?

The share price is up today after an update on its recent trading. The report was significant for two reasons. First, management announced that business from December to February was in line with previous expectations. Second, the company announced a 70p dividend to be paid in May.

The update is noteworthy. Ordinarily, the fact that sales have been in line with expectations isn’t particularly exciting, but the last few months have been tough for companies like Games Workshop. The cost of raw materials rising with inflation as well as increased pressure on consumer spending might have made things difficult for businesses that sell non-essential consumer products. But today’s news indicates that demand for its products has been at least as strong as expected.

The dividend announcement is also important. At 70p, the dividend is an increase on the previous quarter’s payout. Moreover, it means that the company has raised its dividend in each of the last three quarters. Games Workshop has a policy of only distributing surplus cash, rather than using its dividend payout as a way of making its stock more attractive to investors. This means that the dividend is more likely to fluctuate, but I think that this is a good policy. It does, however, provide additional reason to believe that the higher payment in May is indicative of strength in the underlying business, rather than a routine matter.

Looking ahead

Today’s information is undeniably good news for investors. And the share price is responding accordingly. Looking ahead though, I think that there are still some headwinds for the company that might create buying opportunities for someone like me in the future. 

Yesterday, the UK budget was unveiled. Without getting into the details, I suspect that the result of the new policies will be that UK consumers have less money to spend on discretionary purchases. That might slow down sales a bit. The company has clearly fared well during the last few months, but I think there’s still a long way to go.

Furthermore, Games Workshop has taken the decision to suspend sales of its products in Russia, following the Russian invasion of the Ukraine. I view the decision as entirely justifiable and share its dismay at the suffering that’s going on. But I’m also conscious that the decision might mean lower sales figures for the company for a while and I wonder whether that might weigh on the share price.

I had a closer look at Games Workshop Group a while ago and concluded that I’d like a share price of around 6,200p and at that price I’d get ready to buy big. Today’s report means that I might have to be patient. But it also confirms my suspicion that what I’m looking at is a wonderful business.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has recommended Games Workshop. 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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