Here’s my top FTSE 100 stock to consider buying in February

Games Workshop (LSE:GAW) is the FTSE 100’s top-performing stock over the last 10 years. The share price is up over 3,100%. And that’s not even the whole story. 

Investors who bought the stock a decade ago have also their stake rise five times over in dividends. That’s a huge result, but with the stock 13% off its highs, I think it’s one to consider buying.

Dividends

From a dividend perspective, Games Workshop doesn’t exactly stand out. The current yield‘s 2.42% and the distribution amounts to almost 90% of the firm’s net income. 

That means there’s a danger the dividend might be lower if the underlying business runs into challenges. And with consumer spending looking increasingly fragile in the US, that’s a real risk.

I think however, that the firm’s low coverage ratio’s actually a sign of strength. The company growing while returning almost all of its cash to shareholders is actually extremely impressive.

Dividend stocks face a challenge when it comes to growth, since cash returned to investors goes out of the business. But Games Workshop has managed to overcome this in spectacular fashion.

Growth

As a way of thinking about how impressive Games Workshop is, imagine a company that’s worth £1bn. It makes £100m in net income in a year and pays the lot out to shareholders as dividends.

On the face of it, that company’s still worth £1bn. It made £100m during the year, but it sent it all out to shareholders, which means it’s essentially back where it started. 

Given this, the company’s share price shouldn’t have gone anywhere, aside from being moved by external factors. It hasn’t got any more cash and it hasn’t got any new assets.

That’s been largely the story with Games Workshop. But despite distributing almost all of its cash, the firm’s grown its sales by 424% and its earnings per share by over 1,300% in the last 10 years!

The magic formula

The key to Games Workshop’s recent success has been the strength of its key asset. The ownership of the Warhammer franchise gives it a product nobody else can make.

Importantly, this is an intangible asset. As a result, the company doesn’t have to spend money replacing parts that have worn out in the way it would with a machine or a building. 

This is a big advantage, but it doesn’t make success automatic. Disney, Hasbro, and Mattel all have outstanding intellectual assets, but they haven’t managed anything like Games Workshop’s success in its particular speciality.

Management’s focus on customer satisfaction has been a key part of this. Importantly, the result is that the strength of the Warhammer franchise is very much intact going forward.

A buying opportunity?

Games Workshop shares aren’t at a 52-week low and they aren’t trading in previously uncharted value territory. But I still think the current share price is something investors should look at.

The stock’s fallen 13% from its recent highs, but the company’s competitive position looks to me to be as strong as ever. And that gives it a good chance of doing well in future.

The post Here’s my top FTSE 100 stock to consider buying in February appeared first on The Motley Fool UK.

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Stephen Wright has positions in Games Workshop Group Plc, Mattel, and Walt Disney. The Motley Fool UK has recommended Games Workshop Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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