Games Workshop (LSE:GAW) is undoubtedly my favourite investment from the FTSE 250. I bought my initial position in the company when it was significantly down in price from its all-time high in early 2023.
In just the past six months, the stock has grown nearly 9% in price. In my opinion, there may be little growth left for the next couple of years based on the valuation. But I’m still bullish on this fantasy board game developer and retailer because of its 3.6% dividend yield and long-term expansion prospects.
Dividends can grow over time
Despite 3.6% not sounding huge for a yield, it is still relatively competitive. However, I was really sold by the fact that if I bought the shares five years ago, they’d now be yielding 11.5%. That’s because I get the yield on the current share value, not what I initially paid.
Furthermore, the yield has gone up for quite some time now. In October 2021, it was just 2.4%. The company also has had no dividend reductions since 2020.
Now, this might not be the top choice for those seeking cash flow as the yield is vulnerable to volatility.
Management has said previously that it can’t always guarantee a strong dividend. It mentioned that the company would go through high-growth and low-growth periods. However, its core intention is sustenance and survival.
Therefore, this is a good long-term investment. However, arguably, it’s not one I’d want to rely on the dividends to pay my bills with.
A reasonable valuation
Games Workshop currently has a decent valuation. Its price-to-earnings (P/E) ratio is down significantly since the start of 2021. Furthermore, its P/E ratio is approximately equal to its 10-year median.
Therefore, while the market hasn’t currently overvalued the shares, they also aren’t cheap. As analysts are expecting just a 1.6% average annual net income growth rate over the next three years, I’m not that bullish on its near-term growth prospects.
However, I do expect stability, and the dividend provides a nice way to tie me over until the stronger growth expected by analysts for 2026.
The long-term future
2026 is an important year for Games Workshop because it is planning to open a new manufacturing facility in Nottingham. This could lead to improved production capacity and higher sales due to new, heightened abilities to meet demand.
Also, the company has entered into an exciting media deal with Amazon to develop its Warhammer universe into films and television series. This is a strong marketing move, in my opinion, and could lead to a bump in sales.
However, the continued rise of digital gaming, including new immersive metaverse tabletop gaming options, could take market share.
Therefore, management has to be willing to adapt to new trends. But it also needs to stay true to its authentic reputation that is adored by its loyal fans, some of whom have been customers for over 30 years.
I’m bullish on Games Workshop
I love this company. While it’s not going to grow as fast as the next big tech investment, I consider it stable, well-run, and on a long-term path of continued prosperity. Throw in the generous dividend yield, which could keep on rising over time if I buy more shares now, and this deserves to be in my portfolio for sure.
