This one-time fast-growth stock has become a dividend play — with benefits!
Happy young female stock-picker in a cafe
Sometimes, growth stocks switch sides to become big dividend payers instead. However, the share price often declines first, but not always.
One stock with slowing growth rates has held on to its elevated share price and now pays a chunky dividend.
On top of that, it has the potential to launch into another phase of fast-paced growth. So it’s now a dividend stock with benefits!
This one looks different
Sometimes, shareholder dividends don’t exist with companies growing their earnings fast. Or if they do, the yield’s often low.
So for growth stocks, it’s all about targeting capital appreciation via a (hopefully) rising share price.
However, over time, businesses often run their course with rapid growth. Even if that’s just for an extended period until a new catalyst comes along to reignite operations.
Annual increases in earnings might decline then the valuation will likely fall to get in tune with the slowing growth rate. And in such situations, share prices might slip, or perhaps move sideways, for a long time.
What we often see from one-time growth darlings is lacklustre earnings advances accompanied by a yield that isn’t worth writing home about. Sometimes, the quality indicators of the business remain attractive, but the share price action can be pedestrian – for a long time!
But the company I’m thinking about breaks the mould. It’s Games Workshop (LSE: GAW), the miniature figures and games specialist.
The share price rose by almost 1,500% over a four-year period from the beginning of 2017 to the end of 2020, driven by some chunky double-digit advances in earnings.
Big dividends
However, the stock now remains below its peak of around four years ago and the rate of earnings growth in the business has cooled.
City analysts expect a modest uplift in earnings for the current trading year to May 2025 of just over 3%. That looks like slowing growth to me.
However, the directors have authorised some big increases in the dividend over the past few years. Now, with the share price near 10,743p (26 June), the forward-looking yield for the current trading year is just above 4%.
That level of shareholder income puts it up with some of the best dividend stocks on the market.
There are risks here though. One is that the rate of earnings growth has declined so much it could easily move to negative percentages going forward.
The business is quite niche and relies on an army of loyal customers prepared to immerse themselves in the figures and fantasy worlds created by the company. If the offer loses popularity, it would be easy to lose money on this stock.
But what about the added benefits? Well, the company recently granted exclusive rights to Amazon for films and television series to be set within Games Worksop’s Warhammer 40,000 universe.
If that arrangement goes on to deliver, it’s possible for it to catalyse a new period of rapid growth in earnings. Although positive outcomes aren’t guaranteed.
We’ll find out more from the company with the full-year earnings release, due on 30 June.
Meanwhile, I see Games Workshop as worth further research and consideration now. I’d weigh it up for possible inclusion in a diversified portfolio of dividend shares with a long-term focus.
Like buying £1 for 31p
This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!
Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.
What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?
See the full investment case
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended Amazon and 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.