I love FTSE 250 stocks. The index is home to a number of high-quality businesses with serious growth potential. One I already own is Games Workshop (LSE: GAW).
The business manufactures tabletop miniature wargames, best known for its Warhammer brand.
Here’s why I think it’s so appealing.
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More of the same, please
As a shareholder, I’m hoping Games Workshop will be able to replicate the strong performance it’s posted in recent years. In the last five years, the stock’s shot up 209.4%. Since 2008, it’s up a mega 8,000%. That’s an impressive return.
Of course, I must note that past performance is no indication of potential future returns.
A market leader
Even so, I think there are plenty of reasons to believe the stock can continue to rise.
Firstly, the business has a strong economic moat. It doesn’t really have any competition. Granted, as the miniature wargames industry has become more lucrative, larger names such as Disney have begun to enter the space.
However, the business has an incredibly loyal customer base. And what’s also impressive is Games Workshop’s ability to keep players in its ecosystem. One reason for this is that it allows fans and users to join and interact with each other in its stores. Despite potential competition, this in-house customer experience elevates Games Workshop, in my opinion.
A growing dividend
There’s also a 4.5% lucrative dividend yield. That’s above the FTSE 250 average of 3.4% by some margin.
Of course, dividends are never guaranteed. Yet the firm only uses “truly surplus cash” to pay shareholders, so I’m confident of receiving a payment.
On top of that, its dividend has seen major growth in the last decade. Last year alone it was hiked 62%. As an income investor, that’s what I like to see.
An exciting future
What also excites me is the plans Games Workshop has to continue expanding. The business is split up into two operating segments, namely core revenues and licensing. It’s seen consistent growth in the former over the last eight years. But I’m more excited about the potential for the latter business.
This is largely due to its recent deal with Amazon. As part of the agreement announced last year, its Warhammer universe will be developed into film and TV Content. Amazon Prime has over 200m users worldwide so this will expose the brand to an abundance of potential new customers.
Is it expensive?
Some market spectators may say trading on 22 times earnings means the stock looks expensive. It has also had to up its prices in recent times due to rising inflation. While the firm remains the frontrunner in the industry, I’m cautious that in the years to come it’ll face heightened competition from more businesses attempting to grab a slice of the market.
That said, its latest deal with Amazon is a prime example of how it’s diversifying its revenue streams to continue growing.
I’m excited to see what the future has in store for the business. And I feel it can keep going from strength to strength. If I had the cash, I’d pick up some more shares.
