With £8,000, I’d buy 79 Games Workshop shares to aim for £1,100 in passive income

Shares in companies that distribute their earnings to investors make great passive income investments. And sometimes they’re worth a P/E ratio of 23.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Shot of an young Indian businesswoman sitting alone in the office at night and using a digital tablet

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

My retirement is some way off, but I’m looking for shares that can provide me with extra income when the time comes. And I like the look of Games Workshop (LSE:GAW).

Created with Highcharts 11.4.3Games Workshop Group Plc PriceZoom1M3M6MYTD1Y5Y10YALL7 Jun 20197 Jun 2024Zoom ▾Jul '19Jan '20Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '242020202020212021202220222023202320242024www.fool.co.uk

At first sight, the stock’s a bit of an unusual candidate – it’s up 114% over the last five years and trades at a price-to-earnings (P/E) ratio of 23. But there’s more to it than meets the eye.

Buy low?

Sometimes, investing is as simple as buying low and selling high (or maybe not selling at all, but definitely buying low.) It’s hard to see how Games Workshop fits this model though. 

Should you invest £1,000 in Games Workshop right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Games Workshop made the list?

See the 6 stocks

This is a fair point, but buying low isn’t just about picking up shares when the price is lower than it used to be. It’s about buying when the stock’s trading for less than it’s worth

When a stock’s low, the chance of it being undervalued is greater. But it isn’t guaranteed – shares in a bad enough business can still be a terrible investment, even if they’re down 90%. 

Likewise, if a business is good enough, its shares can still be a bargain even if the price has been going strong for a number of years. I think this is the case with Games Workshop. 

Do the numbers add up?

A P/E ratio of 23 implies an earnings yield of 4.34%, but shares in Games Workshop come with a 4.2% dividend yield. On the face of it, that’s surprising. 

It means the company’s sending out all of its earnings as dividends. This can be dangerous if it isn’t holding enough back to meet the ongoing needs of the business.

Games Workshop doesn’t have many ongoing needs though. It owns the rights to its Warhammer, meaning it doesn’t have to keep spending to stay ahead of the competition.

That allows it to distribute virtually all of the cash it generates to shareholders. So a high P/E ratio doesn’t automatically mean a low investment return. 

Compounding to £1,000

Investing £8,000 in Games Workshop shares today could earn me £336 in dividends in the first year. But reinvesting those could help boost my income over time. 

If I manage to keep reinvesting at 4.2% a year, I could turn my initial stake into something distributing £1,100 a year after 30 years. That’s roughly when I’d be looking to retire.

Investing brings risk and Games Workshop’s no exception. The company currently earns around 45% of its revenues from the US, where consumer spending’s currently weak.

That’s a genuine concern investors considering buying the stock should pay attention to. Even the best companies go through ups and downs over time.

What matters with investing

Over the long term, I think the best results come from investing intelligently. That means buying shares in quality companies when they trade at decent prices.

Games Workshop shares look like a good candidate to me. Shareholders might be in for a difficult few months, but I think this is a stock I’ll be glad to have bought 30 years from now.

But there may be an even bigger investment opportunity that’s caught my eye:

Investing in AI: 3 Stocks with Huge Potential!

🤖 Are you fascinated by the potential of AI? 🤖

Imagine investing in cutting-edge technology just once, then watching as it evolves and grows, transforming industries and potentially even yielding substantial returns.

If the idea of being part of the AI revolution excites you, along with the prospect of significant potential gains on your initial investment…

Then you won't want to miss this special report inside Motley Fool Share Advisor – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And today, we're giving you exclusive access to ONE of these top AI stock picks, absolutely free!

Get your free AI stock pick

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Stephen Wright has positions in Games Workshop Group Plc. The Motley Fool UK has recommended Games Workshop Group Plc. 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.

We think earning passive income has never been easier

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

More on Investing Articles

Two employees sat at desk welcoming customer to a Tesla car showroom
Investing Articles

Could Tesla stock be a brilliant bargain in plain sight?

Christopher Ruane sees some things to like about Tesla, but as its vehicle revenues have gone into sharp decline, is…

Read more »

British coins and bank notes scattered on a surface
Investing Articles

3 cheap FTSE 250 stocks with big dividends to consider buying right now

The FTSE 250's loaded with so many big dividend yields it's hard to know where to start. These three have…

Read more »

Rolls-Royce's Pearl 10X engine series
Investing Articles

Up 585%, could Rolls-Royce shares still go higher?

Christopher Ruane likes the Rolls-Royce business but is not so convinced by the value its current share price offers him.…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

I reckon a bull market’s coming! Here’s what I’m buying for my Stocks and Shares ISA

Hoping to capitalise on what he believes is an undervalued UK stock market, our writer’s added more of this FTSE…

Read more »

piggy bank, searching with binoculars
Investing Articles

The UK stock market looks undervalued to me. Here’s 1 growth stock to consider for a SIPP

Our writer explains why he thinks the UK stock market’s currently in bargain territory, and identifies one share potentially worthy…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

Meet the FTSE 100 stock I’ve been buying this week

Despite a strong week for the FTSE 100, one stock fell 7% in a day. And Stephen Wright took the…

Read more »

Businesswoman calculating finances in an office
Investing Articles

1 of my favourite growth stocks crashed 20% in a day this week. Here’s what I’m doing

Stephen Wright thinks the market’s overreacting to short-term growth challenges in one of his favourite UK stocks, creating a buying…

Read more »

Young female hand showing five fingers.
Investing Articles

Here’s a 5-stock high-yielding portfolio that could generate passive income of £1,500 a year

Those wanting to earn generous levels of passive income from their Stocks and Shares ISA could take a closer look…

Read more »