Dividend shares are a fantastic way to build passive income over time. By focusing on owning businesses with plenty of growth potential, it’s possible to watch this income stream organically expand over time.
The FTSE 250 is home to many growth and income stocks. However, companies like Games Workshop (LSE:GAW) are a unique blend of the two. The tabletop miniature manufacturer is one of the best-performing investments in the index over the last decade. And today, shares offer as much as £4.45 in dividends per share. That means owning just 500 of them is enough to earn an extra £2,225 each year, or £41.20 a week.
Plastic is the new gold?
Games Workshop has been around since 1975. It’s the creator of the various Warhammer franchises, generating revenue from selling plastic and resin miniatures, acrylic paints, novels, gaming accessories, and royalties from licensed video games.
However, the miniatures are responsible for the lion’s share of its income stream. The firm regularly releases new models for various armies across the Warhammer games. And when paired with a cult-like following from fans, the firm hasn’t exactly struggled to generate sales. In fact, according to the latest trading update, first-quarter sales for its 2024 fiscal year ending in May came in firmly ahead of expectations.
The top line hit a new record £121m versus £106m a year ago, with pre-tax profits landing at £57m versus £39m. But what makes this even more impressive is that it was achieved during an ongoing cost-of-living crisis. It’s important to realise that Warhammer products aren’t cheap, costing hundreds of pounds to collect and build a single army.
In my opinion, this goes to show that demand for the Warhammer brand is alive and kicking. So it’s no surprise that shares are up nearly 50% in the last 12 months.
Dividends and risks
With the financials continuing to impress, shareholder payouts have followed. The company’s dividend policy is to return excess cash. And while that has led to some lumpy dividend-per-share over the last decade, the long-term trend continues to move in the right direction.
But as encouraging as things seem on the surface, the business is not without its flaws. The high-cost nature of these products has led to a rapid rise in at-home 3D printing among hobbyists. Instead of purchasing official miniatures, some fans have begun printing their own.
3D printing technology is still relatively expensive, and not every collector is going to invest the time and money to print their own models. However, the technology is improving and may eventually undercut Games Workshop’s pricing power.
While this is a significant threat, it’s been a concern that’s yet to materialise for almost a decade now. And with an entire ecosystem built around its games and brands, I think the company has far more staying power than most might think.
