2,425 shares in this FTSE 100 outperformer gets me a £1,000 a month second income
Investors looking to earn a second income can do a lot worse than checking out the FTSE 100. But itâs not always the most obvious names that make the best investments.
While thereâs a lot to like about the likes of Barclays, Shell, and Tesco, Iâm looking elsewhere right now. And Games Workshop (LSE:GAW) is in my sights.
Warhammer
The stock is up over 3,000% in the last 10 years, due to the strength of its Warhammer franchise and customer-focused management. And I think there’s even more to come.
Games Workshop has a film in production thatâs being made in conjunction with Amazon. That’s still a couple of years away, but it could be a huge boost for the company in two ways.
The most obvious is direct revenues from licensing its intellectual property. While a lot of these will be upfront payments, thereâs also scope for long-term royalties that could be highly profitable.
The more subtle benefit, though, is the potential to expand the Warhammer reach. A successful film could have a big effect in bringing people â especially from the US â into its network.
Dividends
I own Games Workshop shares and Iâm optimistic about the future for the firm. And the stock also has some very attractive properties for income investors.
The companyâs core operations exploit its intangible assets, meaning they donât need huge cash investments. And that means it can distribute most of its profits to shareholders as dividends.Â
Over the last 12 months, Games Workshop has distributed £4.85 per share. On that basis, Iâll need 2,425 to get £12,000 a year â or £1,000 a month — in cash distributions.
With the stock at £166.50, thatâs an investment of £406,000. Iâm not in a position to make that â or anything like it â right now, but I have a plan for building a stake over time.
Growth and reinvestment
By reinvesting the cash I receive, I can grow my Games Workshop investment without using any more of my own capital. And at todayâs prices, thatâs an extra 3% a year by itself.
That wonât get me to 2,425 shares any time soon, but there is another force going in my direction. Over the last 10 years, the company has increased its dividend per share by 1,200%.
As a result, the number of Games Workshop shares needed to earn £1,000 a month in dividends has fallen by 92%. And while I don’t expect the same growth rate, I do think my target might come down as my stake goes up.
Together, those two things make a powerful force for long-term returns. So I expect to be making much more income from my investment in future, even if I donât put any more of my cash in.
£1,000 a month?
I donât know whether Iâll reach £1,000 a month with my Games Workshop investment. Part of that depends on what other opportunities are available.
I also donât want my entire portfolio invested in one stock â especially one that isnât diversified and might be vulnerable if consumer spending falls in a recession. And thatâs a risk Iâm very mindful of.
I do, however, want Games Workshop to be part of my ISA for the long term. And as the dividend yield gets close to 3%, Iâm starting to think about buying it again.
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Stephen Wright has positions in Amazon and Games Workshop Group Plc. The Motley Fool UK has recommended Amazon, Barclays Plc, Games Workshop Group Plc, and Tesco 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.
