Games Workshop Group PLC (LON:GAW) is about to trade ex-dividend in the next four days. This means that investors who purchase shares on or after the 17th of September will not receive the dividend, which will be paid on the 23rd of October.
Games Workshop Group’s next dividend payment will be UK£0.50 per share. Last year, in total, the company distributed UK£1.45 to shareholders. Calculating the last year’s worth of payments shows that Games Workshop Group has a trailing yield of 1.4% on the current share price of £101.5. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Games Workshop Group is paying out an acceptable 66% of its profit, a common payout level among most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year it paid out 59% of its free cash flow as dividends, within the usual range for most companies.
It’s encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don’t drop precipitously.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It’s encouraging to see Games Workshop Group has grown its earnings rapidly, up 42% a year for the past five years. Management appears to be striking a nice balance between reinvesting for growth and paying dividends to shareholders. Earnings per share have been growing quickly and in combination with some reinvestment and a middling payout ratio, the stock may have decent dividend prospects going forwards.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Games Workshop Group has lifted its dividend by approximately 19% a year on average. It’s exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
To Sum It Up
Has Games Workshop Group got what it takes to maintain its dividend payments? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. That’s why we’re glad to see Games Workshop Group’s earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow – 66% and 59% respectively. While it does have some good things going for it, we’re a bit ambivalent and it would take more to convince us of Games Workshop Group’s dividend merits.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. To help with this, we’ve discovered 1 warning sign for Games Workshop Group that you should be aware of before investing in their shares.
If you’re in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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