Playing Video Games for Stock Dividends. GME

Video Games
Video Games

Assuming you are a fan of Halo.  {stick a plasma grenade to a grunt} Get it off! Get it off! Get it {BOOM} (Grunt, Halo).  Today we decided to invest in a video game retailer.  I enjoy video games and this felt like a good way to invest in one of my interest.

Background

GameStop (GME) sells new and pre-owned video game software and hardware. In addition, they also sell headphones, smart phones, and tablets.  They are also a re-seller of Apple (AAPL, currently long) products and AT&T (T, currently long).  They also operate a magazine and several websites.  They have about 7,100 stores.  They were founded in 1994 and they are currently headquartered in Grapevine, Texas.

Valuation

The valuation for GameStop (GME) is a good price to buy.  They only have a PE of about 8 and a PS ratio of about .4, which shows we are paying a cheap value for the company.  Currently, they have about $350 million in debt and have earnings of about $400 million per year, showing they could pay off their debt in 1 year if they wanted to.  Having a company close to debt free feels great.  I would rather a company be close to debt free than have a ton of debt and a reduced share count.  And with some of the risk below, not having to worry about debt will be great help to them.

Future

One of the big worries about GameStop’s (GME) future is the path of Blockbuster.  With being able to download videos on the internet, blockbuster went out of business.  With GameStop (GME) main sales, video games, having increasing sales on the internet, this will reduce GameStop’s (GME) main source of revenue.  And it is not likely they can compete with them on their website, because people can buy their games directly through their video game consoles or phones.


There is a couple of reason why I think changeover to the internet will be on the slower side.  The size of video games makes them hard to store on hard drives and can take a long time to download, such as hours or days based on download speed and game size.  However, these obstacles will be overcome with larger hard drives and faster download speeds eventually.

However, GameStop (GME) is not waiting for the end.  You still cannot download hardware like consoles and the future of 3D such as the Oculus Rift virtual reality headset.  Therefore, people still need to buy these somewhere.  GameStop (GME) is a great place to demonstrate the use of these new technologies.  In addition, they have Apple, AT&T, and Direct TV products to sell.  They also have their websites to generate revenue.  So while they are making a ton of cash with their video game sales, they can invest in these new areas to keep growing.

Because of the Blockbuster risk, we believe that is why they are selling at a cheap multiple.  However, as they get these other relationships and products improved and growing, they will offer a great source of dividend growth.  They have a good risk/reward profile for us.

Dividend

GameStop (GME) has only been paying a dividend since 2012 with a starting dividend of $0.60 per share per year and now they are paying $1.48, which is over double in only 4 years.  Their current dividend yield of 4.7% with such growth rate is good, although the last raise was only a 3% raise.  At only a 40% payout ratio to earnings, they have plenty of room to grow it.

What I bought

So we bought 8 shares of GameStop (GME) for $260.26, including those fun commissions.  We will get a start collecting $11.84 per year to start with.  That is enough to buy some used games.  Get your game on and collect some dividends.

 

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4 thoughts on “Playing Video Games for Stock Dividends. GME

  1. Greetings! Extremely helpful advice in this article! It’s the little changes which can make the most important changes.
    Many thanks for sharing!

  2. Hey there, You have done a great job. I’ll definitely digg it and personally suggest to my friends. I’m confident they will be benefited from this site.

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