Video game developer and publisher Capcom is thriving thanks to successful releases that have strengthened its key franchises and propelled its profits to record levels. Like Tencent, Capcom is a foreign company and trades on a foreign exchange, so some of the same additional risks involved with currency fluctuations and political actions apply. But there are many reasons to like this long-standing Japanese business, which has been an industry stalwart for decades since its beginning in 1979. It’s helped shape trends, been through good times and bad, and adapted to create some of the industry’s most unique experiences.While sell-offs hit most video game publishers hard in 2018, Capcom kept an even keel, ending the year with its share price almost perfectly flat. The company’s performance was elevated by growth for the Monster Hunter franchise, with the well-received series installment Monster Hunter: World delivering best-ever sales for the business. The title came in as 2018’s ninth-best selling game in the North American market and was the best-selling game of the year in Japan.

Capcom has also been scoring hits with its Resident Evil franchise, releasing new main-line installments and remakes of previous hits in the long-running horror series that have gone on to delight fans and critics. The company is delivering impressive revenue growth and explosive earnings gains (as reflected by its price-to-earnings-growth ratio of just 0.3 for 2018), and there’s a feasible path to more success going forward as it builds on the foundations of Monster Hunterand Resident Evil.

The Japanese developer and publisher has a strong set of properties beyond those two core pillars, and it owns franchises including Mega ManDevil May Cry, and Street Fighter in addition to a deep library of lesser-known but still-loved classics. The company has been releasing classics since the days of the original Nintendo Entertainment System, and it’s amassed an impressive collection of intellectual properties, some of which could be employed to a greater extent.

Capcom has been smart with its strategy of rereleasing past classics in order to continue profiting from its library. Take the company’s Resident Evil 4, for instance. The action-horror title was first released in 2004 and is still broadly viewed as one of the best games ever made. Capcom has ported the game and rereleased it across more than a dozen different platforms, and it’s scheduled to release a version for Nintendo’s Switch console in 2019. There’s potential to continue leveraging its great back catalog and adding to business brought in by new hits.

Capcom also pays a dividend, which is something of a rarity in the video game space. The company aims to keep its payout ratio at roughly 30% of trailing earnings, which means that it plans to return that percentage of its annual profits to shareholders through dividend payments. Profits tend to shift, so this means the company’s payouts can be erratic, but management has reaffirmed returning cash to shareholders as a core part of stock ownership. This means that shareholders can look forward to increasingly large payouts from the company if its business continues to prosper — in addition to the potential for increases in its stock price.

Shares trade at roughly 15 times the company’s 2018 earnings, an attractive valuation for a company that’s been making great games for 40 years and is demonstrating impressive momentum.

The gaming industry looks like a long-term winner

Investors should have an understanding of the risks involved with gaming stocks, and they need to be willing to embrace the volatility that tends to come with the industry. But the long-term outlook remains promising. Leading players in the video game biz have the potential to deliver strong performance for shareholders, and these companies should continue to benefit from growth trends that are helping the market to expand around the world.

People love entertainment, and video games offer a range of potential experiences that can prove uniquely compelling. That’s a hook that should benefit the overall content category for the next century. While video game companies will probably be hit with some unexpected twists and turns, the entertainment industry has actually proven pretty resilient and adaptive over the years, and there’s a good chance that global demand for games will only continue to grow.

There’s still huge potential in the world of interactive entertainment, and for growth-seeking investors, this dynamic means that it’s worth adding some gaming stocks to your portfolio.

 John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Keith Noonan owns shares of Activision Blizzard and Take-Two Interactive. The Motley Fool owns shares of and recommends Activision Blizzard, Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Microsoft, Take-Two Interactive, and Tencent Holdings. The Motley Fool owns shares of GameStop and has the following options: short April 2019 $13 calls on GameStop, short January 2020 $155 calls on Apple, and long January 2020 $150 calls on Apple. The Motley Fool recommends Electronic Arts and Nintendo. The Motley Fool has a disclosure policy.