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ISA investors! I’d buy this income growth stock in January in the hope of BIG dividends

I believe the release of half-year results next Tuesday (14 January) could send Games Workshop Group (LSE: GAW) even further northwards. The fantasy board game specialist’s share price more than doubled in 2019 as market makers, impressed by its resilience in otherwise tough conditions for the UK retail sector, piled in with gusto.

The wares over at Games Workshop are just about as niche as it gets, and its decades-old history of designing, manufacturing and selling its Warhammer war games has commanded an army of loyal followers that continue to splurge out, despite the broader pressure on consumer confidence on these shores.

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However, it’s the company’s impressive capacity to grab the imagination with new fans in foreign territories which is really standing out right now. Overseas sales now account for three-quarters of group turnover and it’s revving up investment in North America and Asia in particular to keep the tills ringing out. The business opened 19 and eight net new stores in the last fiscal year (to June 2019) in these regions respectively to take the total stores on each continent to 153 and 23.

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Games Workshop advised last time out on 8 November that both revenues and profits in the fiscal year to date were up from the same 2018 period, the business noting in particular that receivable royalties were “significantly ahead” as a result of “the timing of guarantee income on signing new licences.”

The news sent the retailer’s shares soaring 19% in just one day and set the tone for a strong start to the end of the year. As I type, Games Workshop trades at record highs of £63.70 per share, and signs that the business has got the second half off to a flyer — a very-likely scenario, it has to be said – should help it to gain more ground.

It doesn’t matter that the business already trades at a healthy premium, a forward price-to-earnings (P/E) ratio of 28.1 times. This is a reflection of the FTSE 250 firm’s long record of strong earnings growth which City analysts expect to continue. Current forecasts suggest a 12% improvement in the profits column for the fiscal year ending May 2020. The market loves the resilience that its unique products bring to the top line and that’s why it’s long commanded a high rating.

Dividends forecasts to jump?

But Games Workshop isn’t just a great pick for growth investors. I’ve long lauded the company on account of the sprightly pace at which it’s hiked annual dividends over the past half a decade. It raised the full-year dividend 23% last time out to 155p per share, and the signs are looking good for a meaty hike in the half-time payout this time around.

As well as benefitting from solid trading, the company continues to benefit from balance sheet robustness, Games Workshop confirming in September that “cash generation also remains strong.” 

City analysts reckon a 159p per share dividend will be paid out for the full fiscal year to May, resulting in a handy 2.5% yield. Though I reckon they could well end up revising their estimates to the upside following next week’s interims, giving the share price an extra shunt in the right direction.

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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.