Games Workshop Group's (LON:GAW) Upcoming Dividend Will Be Larger Than Last Year's

The board of Games Workshop Group PLC (LON:GAW) has announced that it will be increasing its dividend on the 13th of May to UK£0.70. This makes the dividend yield 4.0%, which is above the industry average.

See our latest analysis for Games Workshop Group

Games Workshop Group's Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Games Workshop Group's dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.

EPS is set to grow by 10.7% over the next year. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 85%. This is definitely on the higher side, but we wouldn't necessarily say this is unsustainable.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The first annual payment during the last 10 years was UK£0.38 in 2012, and the most recent fiscal year payment was UK£1.65. This implies that the company grew its distributions at a yearly rate of about 16% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Games Workshop Group has impressed us by growing EPS at 43% per year over the past five years. Games Workshop Group is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

Games Workshop Group Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Games Workshop Group is a strong income stock thanks to its track record and growing earnings. Earnings are easily covering distributions, and the company is generating plenty of cash. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. To that end, Games Workshop Group has 3 warning signs (and 1 which is potentially serious) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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