I’d buy 267 shares in this outstanding FTSE 250 company for a £1,000 second income

Stephen Wright thinks the strength of Games Workshop’s intellectual property makes it one for investors looking for a second income to consider buying.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

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.

Shares in Games Workshop (LSE:GAW) are down 12% over the last year. But as interest rates in the UK start to fall, I think they could be a great way of earning a second income.

Created with Highcharts 11.4.3Games Workshop Group Plc PriceZoom1M3M6MYTD1Y5Y10YALL12 Aug 201912 Aug 2024Zoom ▾Jan '20Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '24Jul '242020202020212021202220222023202320242024www.fool.co.uk

I think the company has a decent claim to be the best business on the UK stock market. And buying 267 shares could generate £1,000 per year in dividends.

Should you invest £1,000 in Barratt Developments right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Barratt Developments made the list?

See the 6 stocks

The business of models

Games Workshop owns the Warhammer franchise. Quantifying the value of an intangible asset might be difficult, but there are some key metrics investors can pay attention to. 

Warren Buffett says good businesses as ones that earn high returns on equity. And the best investments are ones where companies can keep doing this as their book value grows. 

Games Workshop has done exactly this. Over the last 10 years, the company has been growing its book value, from around £55m to just over £230m.

Games Workshop shareholders’ equity 2014-24


Created at TradingView

During this time, the firm has consistently achieved a return on equity of over 25%, well above the FTSE 100 or the FTSE 250. In other words, its growth hasn’t slowed it down.

Games Workshop return on equity 2014-24


Created at TradingView

Games Workshop’s intellectual property prevents direct competition. And this has led to excellent business performance over the last decade, with shareholder returns to match.

Revenue breakdown

Games Workshop isn’t exactly a diversified business. While it does generate revenue by licensing, substantially all of its sales come from making and distributing models.

In any environment, the challenge with selling a product that people don’t strictly need is to convince them to keep buying. But this is especially true in an economic downturn. 

Furthermore, around 44% of Games Workshop’s revenue comes from the US. And other firms have been reporting slow sales in the area due to slow consumer spending.

So far, it has to be acknowledged that the company isn’t showing any signs of struggling. Its latest update – to the start of June 2024 – reported 11.6% top-line growth for the year.

Investors would be unwise to overlook Games Workshop’s concentrated business entirely. But in fairness, the firm has shown some impressive resilience so far.

Passive income

In my view, where Games Workshop really stands out is from a dividend perspective. The company currently distributes £3.75 per share to its owners.

At £3.75 per share, I’d need 267 shares to earn £1,000 per year in passive income. At today’s prices, that would set me back £26,780, which is a lot.

Games Workshop dividends per share 2014-24


Created at TradingView

Importantly, though, it has an outstanding record of growing its dividend. As the company’s earnings have gone up, so has the amount it pays to shareholders.

Another thing worth noting is that I wouldn’t have to buy all of the shares at once. With an initial investment, I could use the dividends I receive to buy more shares over time.

This means I wouldn’t necessarily need to invest £26,780 to earn £1,000 per year from Games Workshop shares. But if I had the cash to do so, I’d think seriously about it.

AI Revolution Awaits: Uncover Top Stock Picks for Massive Potential Gains!

Buckle up because we're about to dive headfirst into the electrifying world of AI.

Imagine this: you make a single savvy investment in some cutting-edge technology, then kick back and watch as it revolutionises entire industries and potentially even lines your pockets.

If the mere thought of riding this AI wave excites you and the prospect of massive potential returns gets your pulse racing, then you’ve got to check out this Motley Fool Share Advisor report – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And here’s the kicker – we’re giving you an exclusive peek at ONE of these top AI stock picks, absolutely free! How’s that for a bit of brilliance?

Get your free AI stock pick

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.

Like buying £1 for 51p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

More on Investing Articles

Investing Articles

Here’s the dividend forecast for Rolls-Royce shares as Trump rocks the markets

Rolls-Royce shares have joined in the volatility over the past week. However, with the direction being largely downwards, the dividend…

Read more »

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

Dividend yields of up to 11%! Here are 3 UK passive income stocks to consider

Searching for ways to supercharge your passive income with UK dividend stocks? Here are three that have grabbed our writer's…

Read more »

Young Caucasian woman at the street withdrawing money at the ATM
Investing Articles

£10,000 invested in NatWest shares at the start of 2025 is now worth…

NatWest shares surged into 2025, but things have become a little more complicated in recent weeks. Dr James Fox explores.

Read more »

Investing For Beginners

Why the FTSE 250 could outperform the FTSE 100 for the rest of the year

Jon Smith explains why the FTSE 250 could do better than its big brother when factoring in domestic exposure and…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Tariff fears send the Lloyds share price tumbling, but the dividend yield is climbing

Just when the Lloyds Banking Group share price had been rising steadily, along comes a global upheaval to knock it…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

Here’s how a stock market crash could help an investor retire years early

A stock market crash can be alarming -- but for the well-prepared investor, it can also be an exceptional opportunity…

Read more »

Investing Articles

1 key fact to remember in this stock market correction

This writer takes a look at a FTSE 100 investment trust that is catching his eye after the recent massive…

Read more »

Investing Articles

I was wrong about the Tesla stock price!

Tesla stock's been affected more than most by ‘Liberation Day’. But our writer has other concerns about Elon Musk’s company.

Read more »