The dividend at Games Workshop (LSE: GAW) is a moveable feast. While no dividend is ever guaranteed, some companies aim to pay out a consistent dividend on a regular basis, if they can.
The Games Workshop dividend though is more like the action in one of its Warhammer games. It sometimes comes thick and fast – and can be all over the place.
Today (15 September) saw more good news about the Games Workshop dividend. So could this be the trigger to make me finally add the FTSE 250 share to my ISA?
Predictably unpredictable
The company’s policy of returning spare cash to shareholders based on its own financial outlook rather than aiming to stick to a set schedule can mean the dividend moves around a lot.
In the latest announcement, the company announced that trading in its most recent quarter was ahead of its expectations. Revenue jumped around 17% from the same period last year to £127m, while pre-tax profit is expected to have surged 46% to £57m.
In line with the company’s strategy of distributing what it terms ‘truly surplus cash’, the company also announced a dividend of 50p per share. That takes dividends per share declared so far this financial year to £1.95, versus £1.20 per share at the same point last year.
Cash gusher
Take a look at those numbers again – and understand why Games Workshop shares have long been on my watchlist of shares to buy in a stock market crash.
I do not mean the dividend boost, although of course that is attractive. What really interests me is the revenue and profit. The rise is great, but take a moment to appreciate the numbers themselves.
A £57m pre-tax profit on revenues of £127m. That is a profit margin of 45%.
Huge profit margin
What other listed UK retailer has a margin anything like that? Not Tesco, which managed 1.5% last year. Not Next, where the equivalent figure was 18.2%.
Perhaps a closer analogy to Games Workshop is luxury fashion house Burberry?
Like Games Workshop, it operates a network of international stores, sells online and through third party retailers, produces its own branded products and benefits from licensing agreements. But even Burberry’s pre-tax profit margin, at 20%, was less than half of the margin Games Workshop achieved in its most recent quarter.
Strong momentum
It can be dangerous to read too much into one quarter. This one included the launch of Warhammer’s latest Leviathan offering that sold out in a couple of days.
Games Workshop continues to face risks. Its pricy products could see sales fall as shoppers tighten their belts in a recession. Profits are heavily reliant on a limited number of gaming franchises, which could fall out of fashion.
But as a long-term investor, I think the business’ combination of unique intellectual property and a large customer base add up to huge potential. The Games Workshop dividend is just one more attraction for me.
What I find less attractive though, is the valuation. At the current price-to-earnings ratio of 25, the shares are a bit pricey for me. So I shall not be buying.
