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.
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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.
