Also, don’t underestimate the power of a strong gaming title. I may no longer be “hip” like I once was, but I know for a fact that Take-Two Interactive Software, Inc. (NASDAQ:TTWO)‘s Grand Theft Auto V, due out in September, just might prop up the entire industry on its shoulders for a few months. A press announcement from Take-Two in November noted that 125 million copies of the series have been sold since it was first introduced, and, if sales of part five of this series are anything like part four, expect around 25 million copies to sell.
Another key component to GameStop’s success is its partnerships. Early last year GameStop partnered up with Activision Blizzard, Inc. (NASDAQ:ATVI) in order to expand its library of digital game offerings. Last year, GameStop was able to introduce Activision’s Diablo III on digital formats and will be looking to add to its assortment in 2013.
The real power-up
But what really makes GameStop stand out as a phenomenal company is its incredible cash flow and rapidly growing, yet still young, dividend.
Even as sales have plateaued in recent years with the rise of streaming content, margins have expanded and free cash flow generation remains incredibly strong. This has allowed GameStop to return value to shareholders by repurchasing its shares, initiating a dividend in early 2012, and funding all restructuring and digital/mobile development costs from operating profits. With $366.4 million in cash on hand and no debt, GameStop is a well-funded cash cow:
Given the company’s enormous FCF, it instituted a dividend of $0.15 in early 2012 only to raise that dividend to $0.25 two quarters later. At a current payout of $1 annually, GameStop shareholders are netting a 3.7% yield for a company paying out about 32% of Wall Street’s projected 2013 EPS.
I’ll freely admit that on the surface GameStop doesn’t look like the type of company you could blindly trust for a long-term investment. However, its move into digital and mobile, its tight grip on the secondhand game market, its growing number of partnerships, and its unparalleled cash flow make it one of the most undervalued companies I’ve featured in this weekly column. At less than eight times forward earnings and yielding 3.7%, I feel it’s a dividend-paying company you can trust over the long term.
Did Microsoft just make a big mistake with its Xbox announcement? Find out here.
It’s been a frustrating path for Microsoft investors, who’ve watched the company fail to capitalize on the incredible growth in mobile over the past decade. However, with the release of its own tablet, along with the widely anticipated Windows 8 operating system, the company is looking to make a splash in this booming market. In this brand-new premium report on Microsoft, our analyst explains that while the opportunity is huge, the challenges are many. He’s also providing regular updates as key events occur, so make sure to claim a copy of this report now by clicking here.
The article 1 Great Dividend You Can Buy Right Now originally appeared on Fool.com and is written by Sean Williams.
Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on Motley Fool CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool owns shares of GameStop, Amazon.com, and Activision Blizzard. Motley Fool newsletter services have recommended buying shares of Amazon.com, Take-Two Interactive, and Activision Blizzard, as well as creating a synthetic covered call position in Microsoft and writing covered calls on Activision Blizzard. Try any of our Foolish newsletter services free for 30 days. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.