I’d like to bring your attention to Games Workshop Group (LSE: GAW), a dividend hero whose share price was recently registering just below all-time highs.
The fantasy game and model retailer barged through the £40 per share barrier in late September but had slipped, then stagnated, in the year to April 7. The Warhammer owner reminded the market just what it’s all about a week ago, though, with a scintillating trading update which has prompted its stock price to swell around 20% in just a week.
In it, the FTSE 250 business advised that trading has “continued well” following the release of half-year financials in January, with sales and profits in the period to April 7 ahead year-on-year. It added that the the signing of new licensing agreements had also pushed royalties above those of the prior period.
What truly sent Games Workshop’s share price spiralling higher, though, was news it’ll be paying a 35p per share dividend on the back of these strong results. Consequently, the total dividend for the 12 months to May is put at 155p per share, up from 126p in the previous fiscal year.
Dividends marching on
Games Workshop was recently trading just below autumn’s record highs, but can it keep going? I certainly believe so. While Brexit continues to cast a cloud over the wider UK high street, forecast-smashing retail sales data released yesterday has reduced some of the angst surrounding conditions in the company’s core marketplace and has provided some support to its investment case.
What really gets me excited in the long-term, though, are the steps that this niche retailer is making to build its multi-channel proposition in foreign territories. This includes expanding its global store network — the opening of a new Warhammer store in Hong Kong last year marked the company’s 500th shop — and boosting capacity at its Memphis warehouse to better serve its US customers.
In fact, I’m confident enough to say that even if broader retail-related data begins to disappoint again in the weeks and months ahead, that this won’t prove catastrophic for Games Workshop’s share price — after all, less that a quarter of group turnover is generated from British shoppers.
A model stock
It wasn’t a surprise to see City brokers upgrading their forecasts in the wake of last week’s update, and broker Edison for one expects earnings to rise 5% in the upcoming fiscal year (to May 2020) and that this will drive the dividend to 162p per share.
This projection yields a chubby 4.2%, but given Games Workshop’s lack of debt, the oodles of cash that it throws out, and its commitment to returning surplus readies to its shareholders, I believe this projection itself to be upgraded as the new year progresses. Now the firm’s forward P/E ratio of 18.8 times might not make it cheap, but this should prove no barrier to its share price marching ever higher in the months to come, in my opinion.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.