Showing posts with label Gamestop. Show all posts
Showing posts with label Gamestop. Show all posts

Wednesday, December 20, 2017

GameStop

I was so tempted to add Gamestop, symbol, GME as my last 2017 Dividend Machine.  I have just $3,400 to invest to finish up the 2017 Portfolio.   But Gamestop while interesting has two strikes again being a Dividend Machine:  problematic revenue growth and anemic dividend growth.

  • Revenue Growth should follow changes in strategic plan
  • Dividend Growth is anemic disqualifying GME as a Dividend Machine
  • Fundamentals are solid


REVENUE GROWTH is a problem


One problem with GME is the entire business model.  They have been a bricks and mortar retailer in a hot commodity, video games.  Competition from streaming and other technology are real threats.  They are making changes to their game plan these changes are the catalyst that I think makes it at least a safe short term dividend play.


GameStop expects to enhance collectibles business to approximately $650-$700 million during fiscal 2017 and anticipates becoming a $1 billion business by the end of fiscal 2019. Earlier, management had stated that it remains optimistic about non-physical gaming businesses and expects this category to reach approximately 50% of operating earnings by the end of fiscal 2019.

posted by Zacks Nov 2017


The changes noted above suggest to me that GME is making the right changes.

DIVIDEND GROWTH is anemic


GME's dividend yield is quite good.  Currently GME pays a quarterly dividend of $.38 per share.  This is an annual yield of 8.3% at the current price of $18.25.   However, their dividend history is weak.  



Any dividend increase is appreciated and once revenue growth returns, perhaps dividend growth will improve as well.

Technically GME qualifies as a Dividend Machine using a 3 year dividend history.  In 2014 their quarterly dividend was $.33 and today it is $.38.  That is an annual growth rate of just over 5%.  But most recent increases have been just a penny which is only a 2.7% increase.  My goal is 4% or more dividend growth.

STOCK VALUE is good


GME's stock price has been pummeled because analysts think they are mired in a dying industry.  But as I suggested earlier, they are making changes and it is beginning to show up.

Balance sheet is good with a D/E (debt to equity) ratio of .3616.  With a P/E ratio just above 5, I am willing to take a little risk.  Moreover, EPS, even during these difficult times is much higher than dividends paid out.

COVERED CALLS are good


As an income investor, I love yield but I also love calls.  It is hard to predict when good calls are out there.  I like a minimum of 1% yield for the call premium and no less than an 8% capital gain should my shares be called away.  I do find it a bit unusual that a stock with such a dividend yield also has some calls available.

I have held GME a long time.   The yield keeps me in it.  I try to ignore the price collapse.  I am adding and selling two calls.   One is a February call and the other is an April call. 

February GME Call





I like the 12.33% return in just 58 days.

April GME Call


My readers know that I rarely sell a call with expiration that is more than 90 days out.  I am making an exception to  my rule because GME does not have March calls and I need an expiration date after March 10 (the expected next ex-dividend date) to capture the dividend. 





I will split my lots in two.  Some I will sell the quick call and hope it gets taken.  On the other lot, I will sell the April call, pocket both the call premium and the dividend.   In addition, I hope to keep this lot.  It will help me lower my basis on my entire stake in GME.   Moreover, the capital I am investing has the potential to pay me nicely.

Good Income Investing

M* MoneyMadam

Disclosure: long GME with calls
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Monday, July 25, 2016

Play Gamestop with an October call

English: GameStop store, 2423 Ellsworth Road, ...
English: GameStop store, 2423 Ellsworth Road, Ypsilanti Township, Michigan (Photo credit: Wikipedia)
Gamestop, symbol GME is not quite a Dividend Machine. 

GME passes the criteria on dividend yield, on EPS (earnings per share) greater than dividend paid out, on D/E ratio.  Yet, their dividend increases have slowed lately.  Their dividend history is only 4 years and I like to see at least five years of steady dividend growth and most important they are closing stores and reworking their "game" plan and that has resulted in declining revenues.

LOOKING FOR A SANTA CLAUSE RALLY IN GME

However, this is the time of year to buy stocks that might have a pump up in revenue from the Christmas season.   This is by no means fool proof and I find I need to sell on the rumor or expectation rather than waiting for the news of pumped up revenues from Christmas.

Today I am using a covered call to justify my buying GME.  It is a cheap stock with a P/E (price earnings ratio) of only 8.19 and a call that will deliver a mighty 13.8% return should my stock be called away.

I am selling the call with an October expiration so that I get the dividend income as well as the call premium income.  See the details in the table below.




M* MoneyMadam
Disclosure:  Long GME with calls
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Monday, May 16, 2016

Three Gamestop Options for your cosideration

I own Gamestop (GME) and am slightly underwater.  I bought at $40 and I followed through and added at $24.   Theirs is a fickle business.  All these games are new to me and I know, as an outsider, that most of this stuff comes to devices without wires.






The knowledge that content is streamed these days, brick and mortar stores are lagging and that Gamestop owns stores that distribute games makes me nervous.  They pay a very nice dividend even increasing it a little (one cent) recently.  Call options were very good early on.

This was one of my investments that pays a good and increasing dividend with a low debt to equity ratio and I was hoping to cash in on the Christmas season last year and I got greedy.  But let's look at the upside and the downside of GME through the eye of the covered call junky.

Covered Call Junky

I love covered calls.  Most often I win which means I supplement my income and my principle either grows or is stable and when I lose, it tends to be  lost potential (the stock continued to go up) but I pocket the gain from a strike price no less than  my basis.  The worst thing that can happen is the stock tanks and I cannot get rid of it because it is on call. 

Mitigate Risk

The way to mitigate the risk that you can't unload a bad investment is to start with a stock that has some good fundamentals.   One of those is the dividend.  If your stock tanks at least you get paid the dividend while you wait.  Once in a while you get stuck with a stock that not only tanks, it reduces or suspends the dividend.   These are not good circumstances and you need to mitigate that risk as well.

You are really worried about a stock that just cut the dividend going belly-up or in other words bankruptcy .  In the beginning choose a stock with a reasonable D/E (debt to equity ratio).   You may lose your dividend  and additional income from subsequent covered calls because nobody wants this dog either, but it is highly unlikely that you will lose all your principle.

Dollar Cost Average

With these thoughts in mind, I bought GME in 2015 at $40 ish and added in 2016 at $24 ish.  I have received five dividend payments.  Moreover, I have received call premiums in 2015 in April, June, August, and October.  My stock was never assigned.

Which Call should I pick? 

Put together all my thoughts on GME and I am willing to sell more calls at near my cost basis to boost my income and hope to be a winner overall on GME.   If I am stuck with it, I am willing to bet the Christmas season will again boost their fortunes and mine through covered calls.   But I still would not mind losing it.  What is my down side?    With a D/E ratio of about .17 I think they are in good financial shape.


Three calls were available today and I use math to decide what to do. The three calls are:

  1.  June 17 $32 strike 
  2.  June 24 $32 strike
  3.  July 15 $33 strike
Below are the results: 

Yield on the call premium is simply the percent of your principle you receive from the call premium.

Total return, if called, includes the capital gain from selling shares at the strike price, plus the option premium and the dividend. 

You can see that all options look good.  Your time risk is no more than 60 days if you go for the best return.  Your time risk is shortened to 32 days by selling the June 17 strike price $32.  At this writing GME closed at $29.02 (about my basis ) so I used that basis to determine the return from each of these calls.










I use these calculations to help me decide what to do.   I want the cash from the premium and the next dividend; after that I would like the call buyer to take it.  It could end up being a win for both of us.  I am going for the June 17 $32 strike.  I am not going to be greedy again with GME.

M*MoneyMadam

Long GME: hoping for calls




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Wednesday, June 24, 2015

GME an excellent Income Machine



June 23, 2015 

Just returned from a quick trip that left me without access to the internet.  Upon my return I see evidence of my dividend/covered call income strategy.

GameStop, symbol GME. 

Bought GameStop in March for $40.60.  I bought it for the dividend, the recent dividend increases, the balance sheet and the opportunity for covered calls.  I was so confident that GME could be a good income stock with growth potential I wrote about it; see link: http://www.themoneymadam.com/2015/03/gamestop-gme-new-money-for-old-people.html  at that time the stock was trading closer to $44.00.    

When I bought GME at $40 ish I sold an April $44 call that expired. 

On April 22 I sold another $44 call that expired on 6/22/2015 with an expected dividend payment on 6/23/2015.   Very nice to see the call expire, the premium from selling the call in the bank and the dividend delivered as expected and the stock trading above the strike price.

Income investors take note.  Two turns at covered calls and two dividends since taking a position in GameStop.  GME, a good income machine.

TheMoneyMadam

Disclosure:  Long GME with calls

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