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  • Writer's pictureMatt Wolodarsky

*Stock Idea* 130+ year old home entertainment company undergoing overdue transformation

Company: Nintendo (OTC: NTDOY)

A 130+ year old home entertainment company that got its start in playing cards, Nintendo is undergoing a major transformation. They are becoming less dependent on each new console release and improving their ability to monetize a growing install base. All promising moves for Nintendo to be able to provide more stable earnings and consistent dividend increases.

All data presented in article is current as of January 8, 2020.

Nintendo has been a dominant player in the video game industry for decades. I suspect many of you reading this article have childhood memories of playing Ice Hockey, Super Mario Bros., Legend of Zelda, or Duck Hunt.

Nintendo has an unmatched track record in game development, releasing 21 of the 25 best-selling console and handheld games of all time. Nintendo has some of the most valuable intellectual property (IP) in the world. Nintendo’s iconic characters bring whole families into their exotic worlds, enabling them to capture more casual gamers than their competitors can.

Nintendo is ramping up its monetization efforts, extracting more value from its unrivaled IP, not just in gaming, but also film, TV, theme parks, toys and merchandising. Just like the monetization optionality Nintendo has in front of it to grow its business, the stock offers investors a lot of potential across its current yield, dividend growth potential and value upside.

An under appreciated business model transformation is well underway at Nintendo. They are turning their console business into a platform.

Nintendo is making their Nintendo Switch console backwards compatible. This means Nintendo’s installed base will never again reset to zero, allowing the company to steadily expand their user base, attract more 3rd party game developers and better monetize the Switch platform.

Nintendo is also steadily growing a recurring service revenue model thru their streaming videogame service called Nintendo Switch Online and reinvigorating their mobile efforts.

These initiatives all bode well for Nintendo's continued growth over the next few years. They are on a great trajectory, with lots of reason to believe this will continue. Nintendo has grown earnings at a staggering rate of 100% annualized over the last 5 years.

While Nintendo offers investors some compelling growth upside, they also have a solid dividend at a current yield of 2.4%. I believe their dividend is poised to grow consistently over the next 5 - 10 years. Here is why.

The Bottom Line

Solid dividend that should stabilize as Nintendo smooths out the volatility of its earnings as they continue to transform. High growth potential beyond the dividend, with limited downside. I have a position in Nintendo and recommend it as a buy at its current price of $80.05 for investors looking for growth and dividend income.

Note: U.S. and Canadian investors can purchase Nintendo stock traded over the counter (OTC) with the ticker symbol NTDOY.

If you'd like to go deeper on Nintendo I highly recommend Ryan O’Connor’s April 2019 Crossroads Capital INVESTOR LETTER.

As with any investment decision you make it’s important to complete your own due diligence and assess if the investment matches your risk profile. Like any individual stock there is risk. You are entirely responsible for your own investment decisions.

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