There’s plenty that retail investors can learn from Warren Buffett.
Many of us will never deal with the amounts of money he does. After all, he’s worth over $130bn. However, I still want to apply the guidelines Buffett sets out when buying a company to my portfolio.
One stock I think fits the bill is Games Workshop (LSE: GAW). I recently added to my position. Here’s why.
Should you invest £1,000 in Games Workshop right now?
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An industry frontrunner
Buffett says it’s smart to buy businesses that have strong competitive advantages. That’s why Berkshire Hathaway’s portfolio includes companies such as Apple. Looking at Games Workshop, I also think it ticks that box.
It manufactures tabletop miniatures. When it comes to competition, it doesn’t really have any. On top of that, it also has a loyal customer base. Users have spent large amounts of time and money on the hobby. As a result, the business is very effective at keeping people in its ecosystem.
A meaty yield
Buffett also likes to make passive income. If we look at his portfolio, a lot of the companies he owns have a healthy dividend yield. In fact, from just one of his holdings, Coca-Cola, he earns over a million pounds a day on average from dividend payments.
While it’s unlikely I’ll ever generate a second income that size, Games Workshop’s 4.6% yield is certainly enticing. By reinvesting the money I receive and benefitting from ‘dividend compounding’, I’ll also be able to build my wealth quicker.
What I like about the business is its dividend policy. Buffett, like my colleagues here at The Motley Fool, invests for the long term.
I’m wary of buying into yield traps. Just because a share has a high yield, that doesn’t always mean it’s sustainable. However, Games Workshop only uses “truly surplus cash” to pay shareholders.
Not without risks
That’s not to say investing in the stock doesn’t come without risks. I’m conscious competition will heat up as the tabletop wargaming industry continues to expand. There’s always the threat that this could hurt its ability to retain customers, which has already had to increase prices lately due to inflation.
With it trading on 22.2 times earnings, the stock could be deemed expensive. For comparison, the FTSE 250 average is around 12.
Buying the best
But that hasn’t deterred me. Buffett would rather pay a premium price for a high-quality company than a low price for a struggling business. With Games Workshop, I’m confident I’m getting quality.
The firm has experienced impressive growth in its core revenues, but it isn’t resting on its laurels. Now it’s putting a focus on driving revenues for its licensing business.
Most notably, it has struck a deal with Amazon that will turn its Warhammer universe into film and TV content. This will no doubt help attract more attention to the brand.
In it for the long haul
I recently added to my position in Games Workshop. But if I had the spare cash, I’d happily snap up some more shares today. I’m excited to see where the business can continue going in the years and decades ahead.
