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Games Workshop (LSE:GAW) is one of my top passive income stocks. The dividend yield might only be 3%, but the company has increased its distribution by an average of 23% per year since 2014.
Despite this, the share price fell 5% in a day on Friday (23 May) when the firm issued its preliminary results for the year 2024/25. I thought the report looked good, so should I buy more for my portfolio?
Growth
Over the last 10 years, Games Workshop has achieved some eye-catching growth numbers. Revenues have climbed 342% – and the latest announcement indicates another 16%.
The FTSE 100 company’s pre-tax profits have typically grown faster than its revenues. And that’s set to continue with around 25% growth for the most recent year.
By itself, this is impressive. But what stands out to me the most is the fact the company has managed to achieve this growth without retaining much of the cash it generates through its operations.
A lot of firms can grow their sales by investing in new facilities, expanding their store count, or hiring more staff. But all of this costs money that can’t immediately be returned to shareholders.
Games Workshop, by contrast, has grown while returning around 80% of its net income to investors. That’s why it’s one of my favourite passive income stocks – it grows while paying dividends.
Despite this, there are some risks with the company that just never go away. And the stock hasn’t fallen 5% in a day for no reason at all.
Licensing
Games Workshop’s key asset is its Warhammer franchise. Its intellectual property is extremely valuable and licensing this to other companies is a key source of high-margin revenue.
The latest update revealed strong growth in licensing revenue, which came in at £50m compared to £31m the year before. But investors shouldn’t get too carried away with this.
While this was a record high, the firm warned that this is expected to subside in the next 12 months. Given the company’s ongoing focus on this part of the business, that’s a slight disappointment.
It’s also a timely reminder that Games Workshop makes products that depend on what people want, rather than need. And that means there’s always a chance of demand being weaker in a recession.
This, however, has been true for as long as the company has been in business. So far, however, anyone who bought the stock 10 years ago and held on has done very well with their investment.
My own view is that the company’s intellectual property should continue to be very valuable going forward. So even if the latest results are unusually strong, I still have a very positive view of the stock.
Time to buy?
In the context of a stock that’s up 21% since the start of the year, a 5% decline isn’t actually that significant. But the question is whether or not it’s enough to make a buying opportunity.
I don’t usually cop out on these things, but I think it’s 50/50 at the moment. In my own portfolio, I’m planning to wait until the July update before deciding what to do.
