Two Dividend-paying Video Game Stocks to Purchase Despite Inflation, Recession and War
By: Paul Dykewicz,
Two dividend-paying video game stocks to purchase despite high inflation, risk of recession and Russia’s unrelenting war in Ukraine offer the stability of income payouts and a chance for growth during the next year with a pair of leaders in that popular product category.
With the Fed already having raised interest rates 0.75% in June, July and mid-September and warned of further hikes to curb an increase in the Consumer Price Index of 8.3% during the last 12 months, BofA Global Research is forecasting a 2023 recession scenario with video game sales falling 4-6%. For that reason, investors would be wise to buy income-paying video game stocks that should capitalize on the obstacles, flashing lights and dramatic sound effects that entice users to play their favorites repeatedly while tightening their budgets in other ways.
BofA wrote in a recent research note that it prefers personal computer (PC) and console video game exposure than mobile-oriented investments. Key advantages for the favored PC category in a recession stem from monetization of hardcore gamers, primary entertainment, immersive and social game playing, while facing lower user acquisition risks than mobile competitors, BofA wrote.
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Two Dividend-paying Video Game Stocks to Purchase Lifted Aided by Loyal Users
“Interactive entertainment, including video games, are inexpensive and a form of entertainment that consumers are likely to continue using in a declining economy as they reduce spending in other areas,” said Bob Carlson, a pension fund chairman who also leads the Retirement Watch investment newsletter. “But not all video game companies will do well. The company must continue offering innovative, new and compelling content that engages players.”
Bob Carlson, head of the Retirement Watch newsletter, meets with Paul Dykewicz.
Electronic Arts (NASDAQ: EA), a video game company headquartered in Redwood City, California, is a good choice for investors because more than half of its revenue comes from sports games, Carlson counseled. The company has a strong customer base, and its revenues and earnings likely will be consistent regardless of what happens in the economy, he added.
The company also is the “top pick” in a recession among video game stocks covered by BofA. The investment firm set a price objective on the stock of Electronic Arts at $155 a share and described the company’s franchises as the “consumer staples” of the video game industry due to its hardcore gamer communities and dominant brands.
The top titles offered by Electronic Arts include FIFA, Apex Legends, Madden NFL, F1, PGA Tour, Battlefield Mobile and others that should be resistant to a recession as gamers are more likely to pull back on obscure, new-to-market titles than their longtime favorites, BofA wrote. Mix shift into Live Services (estimated at 75% of fiscal year 2024 sales) and lower exposure to Casual mobile (11% of fiscal year 2024 sales) also strengthen the case for the company as BofA’s top pick among video game stocks during a recession.
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Value investors may like that Electronic Arts currently trades below BofA’s index of 18 PC/Console game publishers on a price-to-earnings (P/E) basis. Risks to the stock include a loss of key personnel, deterioration of gamer budgets in a return-to-work environment, rising personnel costs that are not offset by price increases and production delays, wrote Omar Dessouky, CFA, BofA’s video game research analyst.
Skousen has Recommended EA Profitably as One of Two Dividend-paying Video Game Stocks to Purchase
Mark Skousen, leader of the Forecasts & Strategies investment newsletter, recommended Electronic Arts profitably during 2021 in his TNT Trader service. He also turned a profit in video game company Zynga in 2020 for subscribers of his monthly newsletter.
Skousen currently is not invested in any video game stops but part of the reason is due to the continued Fed interest rate hikes that are slowing the economy. Plus, the money supply has shrunk from growth of 40% in 2020-21 to under 6% in 2022.
Mark Skousen, a descendant of Ben Franklin and head of Forecasts & Strategies, meets with Paul Dykewicz.
Microsoft Makes Move into Two Dividend-paying Video Game Stocks to Purchase
Microsoft Corp. (NASDAQ: MSFT), a Redwood, Washington-base global software giant, is a “must-own,” dividend-paying stock for investors due to its financial profile, position to gain even more market share across a number of vertical markets, and the resiliency of demand for its major products that have become essential across all enterprises, according to Chicago-based investment firm William Blair & Company, L.L.C. Microsoft, with a goal to enable digital transformation for the era of an intelligent cloud and an intelligent edge, announced on Sept. 20 that its board of directors declared a quarterly dividend of $0.68 per share, up 6 cents, or 10%, from the prior quarter’s payout.
The increased Microsoft dividend is payable Dec. 8, 2022, to shareholders of record on Nov. 17, 2022. The company’s dividend yield currently is 1.2% and its ex-dividend date will be Nov. 16, 2022. Investors interested in receiving the next dividend payout would need to purchase the stock before the market’s close on Wednesday, Nov. 16.
Microsoft has become a leader in video game consoles in recent years with the Xbox, Xbox 360, the Xbox One and the Xbox Series X. In addition, Microsoft acquired video game holding company Activision Blizzard for $68.7 billion in cash on January 18, 2022. The purchase became the biggest in Microsoft’s history and moved the company into third place in annual video game revenues.
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Two Dividend-paying Video Game Stocks to Purchase Highlight Acquisition-Fueled Microsoft
Microsoft’s results for its fourth quarter ended June 30, 2022, came in below consensus by $519 million for revenues, equaling 16% constant-currency year-over-year growth, and $0.06 short for earnings, equating to 8% constant-currency year-over-year growth. While Microsoft management had updated its guidance in June 20222 due to unfavorable foreign exchange (FX) headwinds, the impact was greater than expected — causing a $595 million reduction in revenue and $0.04 on earnings per share (EPS).
Plus, Microsoft was hurt by a $126 million operating income drag after scaling down its operations in Russia, following President Vladimir Putin’s ordering its military’s Feb. 24 attack of Ukraine, and another $113 million in additional expenses in the quarter from the company’s reorganization of business groups. Finally, Microsoft absorbed $300-plus million in negative impact to its Windows OEM revenue as a result of lockdown-related production shutdowns in China.
Its management expects cost of goods sold (COGS) rise 13.5% at the midpoint in the fiscal first quarter ended Sept. 30, and for operating expenses to grow 19.5% at the midpoint. As Microsoft moves through fiscal 2023, management noted that operating expense growth should start to materially decelerate — allowing operating margins to stay stable at roughly 42% for the year. In addition, management noted a change to its useful life accounting, cutting depreciation costs on its data center footprint and roughly canceling out FX headwinds for the full fiscal year.
Non-Dividend-paying AppLovin Omitted from Two Dividend-paying Video Game Stocks to Purchase
The lack of a dividend kept AppLovin (NASDAQ: APP), a mobile technology company in Palo Alto, California, from joining Electronic Arts and Microsoft as income-paying video game stocks to purchase. Nonetheless, BofA gave AppLovin a $43 a share price objective, with the company’s software segment assigned a value of $41 a share and its gaming segment, including both in-game advertising and in-game consumer spending, equaling $2 a share.
The stock’s chance to outperform expectations would be aided by a new dovish U.S. central bank monetary policy and regulation that would reduce Apple’s (NASDAQ: AAPL) or Google’s (NASDAQ: GOOGL) control over their own mobile ecosystems, BofA wrote. Risks to attaining BofA’s projected price objective for APP include a recession and a tightening of financial conditions brought about by the Fed.
The investment firm predicted that mobile platform policies of Google and Apple would debase broker ad networks’ value proposition. Plus, a “major resurgence” of Facebook, owned by Meta Platforms Inc. (NASDAQ: META), on iOS would hurt AppLovin’s stock price, BofA wrote.
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“Although mobile gaming is our least favorite video game vertical in a recession, we view Mobile Ad Networks as relatively advantaged in the overall mobile ecosystem due to their superior market position and pricing power,” BoA wrote.
Reasons the impact of a recession could be lessened include:
- Some pricing power could offset declines in ad volumes
- Spread-taking business model and enterprise-driven spending
- Ramp-up of new business lines and rationalization of casual gaming business could counter recession-induced revenue declines
Robolox Warrants Watching Despite Absence from Two Dividend-paying Video Game Stocks to Purchase
Robolox (NASDAQ: RBLX), a video game developer in San Mateo, California, received a buy rating and a $54 price objective from BofA Global Research. The company is poised to benefit from secular growth catalysts that should counter a recession, the investment firm wrote.
The company offers innovative technology, such as real-time facial animation, and new business lines that feature immersive advertising. The spending habits of its core U.S. and Canadian customers in the age 9-12 cohort should show resilience in an economic downturn, if past recession-period data provides any guide, BofA wrote.
Robolox’s increasingly important social function, similar to META and TikTok, also differentiates it from video games and makes it compelling for some players, BofA reported. Risks to achieve BofA’s price target may arise from not developing high production value content to appeal to a broader demographic, and an inability to continually improve the developer value proposition and stagnating the developer base.
Robolox’s platform attracts younger users, with children under the age of 13 making up roughly 50% of its daily consumers. The company’s skew toward younger players could make it more recession-resistant, BofA wrote.
Chart Courtesy of www.stockcharts.com
Two Dividend-paying Video Game Stocks to Purchase Two-Step Past Take-Two Interactive
Take-Two Interactive Software Inc. (NASDAQ: TTWO) is a New York-based video game holding company that earned a $130 price objective from BoA. The company boasts “world-renown titles” such as Grand Theft Auto, NBA 2K and Red Dead Redemption.
In addition, Take-Two Interactive’s PC/console franchise is among the best in the industry, BofA wrote. Yet, underperformance of the mobile segment could lead to downside surprises in a recession, with the success of Zynga integration an added unknown. A largely undisclosed slate ramped into a 2023 recession and a potential delay in GTA VI release contribute to an uncertain outlook that caused the investment firm to rank it neutral.
However, investors willing to take the long view may like potential catalysts for the stock. They include an announcement about Grand Theft Auto VI sooner than later, a potential acquisition by a strategic buyer and better-than-expected performance of mobile games acquired through its Zynga transaction. Risks include a severe recession causing reduced consumer expenditures on TTWO’s games, delays in game development of a major title, such as GTA 6, and continued underperformance of mobile games.
Chart Courtesy of www.stockcharts.com
Connell Talks about Take-Two Interactive as Non-Dividend-paying Choice for Patient Investors
Investors willing to speculate on Take-Two Interactive with its share price down could produce a reasonable return, if given time, due to its roughly two dozen significant games in development that are scheduled for release between now and fiscal 2025, said, Carlson, who heads Retirement Watch. A few “big hits” in the group or many solid products could “boost” the company’s revenue and earnings, he added.
Another fan of Take-Two Interactive at its reduced current valuation is Michelle Connell, of Dallas-based Portia Capital Management, who called it a “a forward-looking pick.”
Michelle Connell, CEO, Dallas-based Portia Capital Management
Take-Two Interactive’s share price has been “weak” since the company announced plans in January to buy Zyngna in a $13 billion acquisition of a mobile gaming leader, Connell said. The stock is down about 39% so far this year, compared to just above 31% for NASDAQ.
“Potential cost synergies from the acquisition are estimated to be $100 million,” Connell counseled. But the savings still need to be achieved.
The video game sector is viewed as a defensive investment play during recessions or periods of economic uncertainty. Connell continued. A $60 investment for a video game can go a long way in providing entertainment for many days, she added.
Concerns about the stock grew when the company missed revenue estimates during the past quarter but there is much to look forward to in the future, Connell opined. Since June 30, 2022, TTWO has had its 12-month sales estimates increased the most of any company within the S&P 500 — a boost of 66%, she added.
Its 12-month earnings per share estimates have risen 10%, Connell continued. The stock’s average price estimate is $160, up 50% from current levels, she added.
Rising U.K. COVID-19 Cases Do Not Imperil Two Dividend-paying Video Game Stocks to Purchase
COVID-19 cases and deaths affect supply and demand for video game products and many others. Smart investors monitor COVID-19 outbreaks and lockdowns that cause supply chain problems. Signs that the United Kingdom may face a wave of COVID-19 cases caused experts to warn the United States could follow. Even though a recent rise in COVID-19 cases in England does not seem due to a new coronavirus variant thus far, several new strains are surfacing in the United States and elsewhere.
But Canada announced on Sept. 26 that it would remove all remaining Covid-19 entry restrictions, such as testing, quarantine and isolation requirements. That could aid trade and tourism between that country and the United States, among others.
Resistance to China’s strict zero-tolerance COVID policy occurred recently as a rare protest occurred in its technology hub of Shenzhen, social media video showed. Dissent came after government officials ordered a sudden lockdown due to 10 new infections on Sept. 27 in the city of more than 18 million people.
China has locked down more than 70 cities fully or partially to preserve its zero-tolerance policy of COVID. Plus, 27 people were killed and 20 more were injured when a quarantine bus overturned on a mountain road Sunday night, Sept. 20.
U.S. COVID-19 deaths totaled 1,059,291, as of Sept. 30, according to Johns Hopkins University. Cases in the United States climbed to 96,347,399. America has the dreaded distinction as the nation with the most COVID-19 deaths and cases.
Worldwide COVID-19 deaths rose to 6,545,161, as of Sept. 30, according to Johns Hopkins. Global COVID-19 cases reached 617,405,553.
Roughly 79.5% of the U.S. population, or 264,112,767, have received at least one dose of a COVID-19 vaccine, as of Sept. 28, the CDC reported. Fully vaccinated people total 225,284,115, or 67.9%, of the U.S. population, according to the CDC. The United States also has given at least one COVID-19 booster vaccine to nearly 110.0 million people.
Two Dividend-paying Video Game Stocks to Purchase Appear Alluring
The two dividend-paying video game stocks to purchase appear alluring amid the market’s 2022 drop. Those two dividend-paying video game stocks to purchase seem strong enough to withstand headwinds of high inflation, risk of a recession after 0.75% rate hikes by the Fed in June, July and September, as well as Russia’s war in Ukraine that led to its audacious Sept. 30 claim of annexing regions of its neighboring country that its troops have been occupying in Putin’s so-called “special military operation” that the United Nations declared violates international law.
Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, the Journal of Commerce, Seeking Alpha, Guru Focus and other publications and websites. Paul, who can be followed on Twitter @PaulDykewicz, is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. Paul also is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The book is great as a gift and is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many others. Call 202-677-4457 for multiple-book pricing.