If I’d invested £10,000 in this FTSE 250 stock a decade ago, I’d have a £6,703 second income today

Games Workshop shares have been a terrific investment over the last 10 years. Stephen Wright thinks there’s still an opportunity to buy the FTSE 250 stock.

| More on:

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Games Workshop‘s (LSE:GAW) been one of the best-performing FTSE 250 stocks of the last decade. Its share price has gone from £6.10 to £105.70 over that period.

The company’s also been a terrific source of dividends. And I think it could be a great passive income investment, even at today’s prices.

Growth

A decade ago, £10,000 would have bought me 1,639 shares in Games Workshop. This would have a market value of £173,242 today, which amounts to a 1,632% gain. 

That’s a terrific result, but it’s important to note where that gain’s come from. It isn’t just investor sentiment – the rising share price has been driven by the underlying business.

The stock currently trades at a price-to-earnings (P/E) ratio of 26, compared to 24 a decade ago. The share price increase isn’t the result of investors paying more for the same earnings.

By contrast, Games Workshop’s earnings per share have grown from 25p to £4.09 over the last decade. That’s a 1,536% gain, which accounts for virtually all of the share price gain.

Dividends

Earnings growth has been outstanding. But the most impressive thing – in my view – has been its ability to do this while paying dividends to its shareholders. 

A lot of businesses can grow their earnings. Often though, this involves investing in new products and facilities, which uses cash that could otherwise be returned to shareholders.

With Games Workshop, the situation’s different. The company’s achieved its impressive earnings growth without having to reinvest the majority of its profits to fund this. 

Since 2024, the company’s made £19.72 per share in profits and distributed £14.77 of that as dividends. If I’d used £10,000 to buy 1,639 shares a decade ago, I’d have received £24,208.

Outlook

Of course, there are risks with investing in the shares. The non-essential nature of its products creates a danger of lower profits when consumer spending’s weak.

There’s no way to eliminate this risk entirely, but the company has some features that stand it in good stead for the long term. Chief among these is its low capital requirements. 

Games Workshop’s ability to grow while distributing its cash is the result of its low capital requirements. And this is still a feature of the business, which bodes well for the future.

The company owns the rights to Warhammer. This means it doesn’t have to compete on price with other firms – it’s the only business able to manufacture products in that franchise.

A stock to consider buying?

Last year, Games Workshop distributed £4.09 in dividends per share. If I’d used £10,000 to buy 1,639 shares a decade ago, I’d have received £6,703 in passive income. 

The big question is whether the stock’s still worth researching with a view to buying at today’s prices. I think it is. The business still has the key features that have driven its success over the last decade.

Games Workshop still has a business model that allows it to grow while paying dividends to investors. And a P/E ratio of 26 means it’s not much more expensive than it was in 2014.

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 positions in Games Workshop Group Plc. The Motley Fool UK has recommended Games Workshop Group Plc. 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.

More on Investing Articles

Investing Articles

Could this beaten-down UK growth stock be the next Rolls-Royce?

Mark Hartley feels Rolls shares have had their time and are running out of steam. Now he’s searching for the…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Down 10% in a month! What’s gone wrong with the BAE Systems share price?

Harvey Jones suspected all was going a bit too well for the BAE Systems share price. Things went wrong immediately…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

Are BT shares still a bargain after climbing 30%?

BT shares are finally showing signs of life after years in the doldrums. Harvey Jones thinks this may point to…

Read more »

Investing Articles

£10k in an ISA? Here’s how I’d aim to generate a ton of passive income

I dream of escaping the shackles of a salary with financial independence and a steady stream of passive income. Here’s…

Read more »

Investing Articles

Are Burberry shares a bargain or a value trap?

Appearances can be misleading in the stock market. Shares that look like a bargain can turn out to be a…

Read more »

Investing Articles

How I’d target £17,673 passive income with just £100 a week

Our Foolish writer explains how he’d build a portfolio capable of generating a life-changing passive income with limited capital.

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

If I’d put £20k into a FTSE All-Share tracker fund 10 years ago, here’s what I’d have now

A lot of UK investors have money in FTSE All-Share tracker funds. Here, Edward Sheldon looks at how these products…

Read more »

Investing Articles

How I’d invest £10k in a SIPP to target £28,000 annual passive income

Investing just £10k today in a SIPP could be the key to a chunky retirement income in the long run.…

Read more »