Games Workshop Group (LON:GAW) Is Reducing Its Dividend To £1.00

Games Workshop Group PLC (LON:GAW) is reducing its dividend from last year's comparable payment to £1.00 on the 16th of September. The yield is still above the industry average at 5.4%.

See our latest analysis for Games Workshop Group

Games Workshop Group Is Paying Out More Than It Is Earning

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, the company was paying out 118% of what it was earning. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.

The next 12 months is set to see EPS grow by 3.1%. If the dividend continues on its recent course, the payout ratio in 12 months could be 98%, which is a bit high and could start applying pressure to the balance sheet.

Games Workshop Group Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was £0.20 in 2014, and the most recent fiscal year payment was £5.40. This works out to be a compound annual growth rate (CAGR) of approximately 39% a year over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

Dividend Growth Could Be Constrained

The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see that Games Workshop Group has been growing its earnings per share at 18% a year over the past five years. However, the company isn't reinvesting a lot back into the business, so we would expect the growth rate to slow down somewhat in the future.

The Dividend Could Prove To Be Unreliable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While the current distribution levels might be a bit unsustainable, we can't deny that until now it has been very stable. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for Games Workshop Group that you should be aware of before investing. Is Games Workshop Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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