A High-Dividend Stock with Dividend Growth Possibilities
An income investor’s ideal stock would likely be a high-dividend stock with future dividend growth prospects. However, finding such a company can be quite time consuming and difficult. Also, the investment must make sense from a valuation perspective.
A company that would meet this criteria and that continues to reward their shareholders is GameStop Corp. (NYSE:GME) stock. A consumer electronics retailer specializing in video games, the current yield for GME stock is 5.79%, based on the current trading price of $25.52.
GME stock would also be considered a dividend growth stock as well. The dividend, reviewed annually each February, has increased 25% since 2013. And with a payout ratio of 39.15% of earnings, there is a possibility of further dividend hikes in the future.
In the third quarter of 2016, GameStop bought back $36.0 million worth of shares. An additional $209.3 million is expected to be bought back under the current share repurchase program. (Source: “GameStop Reports Third Quarter 2016 Results,” GameStop Corp., November 22, 2016.)
This benefits shareholders because share buybacks are a tax-efficient method of returning cash to them. And due to the repurchases, there are fewer shares available, which means the outstanding shares are worth a greater percentage of the company. This adds to the overall net worth of investors.
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Fundamental Outlook
The first metric that makes GME stock look attractive is the price-to-earnings (P/E) ratio. This shows investors how much is being paid for each dollar of the company’s earnings.
GameStop’s current P/E ratio is 6.9 times. The reason this is attractive is because the S&P 500’s ratio is 26.01 times. Therefore, when comparing the two, GME stock trades at a discount.
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Another metric that makes GME look attractive is the debt-to-capital ratio. This ratio details how the company is growing, whether it is via debt or by equity. A ratio of 50% or greater signifies that the company is growing by debt and may be over-leveraged, while below 50%, means the company is growing using its equity. The ratio for GME stock is 27.7%, meaning growth is via equity.
Final Thoughts on GME Stock
This is an opportunity to consider GME stock and its attractive valuation. Over the past year, shares have seen a flat return when the dividend is factored in.
GME stock is a high-dividend stock that could satisfy the needs of income investors, including those looking for growth in addition to the payout.