The month of May is starting out strong on the stock market as most investors are patiently waiting for a correction. Since it’s spring time and we are all looking to spend more time playing outside, I thought of doing a small analysis series of toys & entertainment dividend stocks. Today we start with Mattel (NASDAQ: MAT), a stock showing a year-to-date return of +23.84% as at Monday May 6th before the market opening. This stock has been selected at the beginning of the year to be part of my book of The Best 2013 Dividend Stocks.
Mattel (MAT) Business Description:
Mattel is one of the biggest toy manufacturers, marketers and distributors. It has an impressive portfolio of brands including all-star names such as Fisher-Price, Little People, Barbie, Hot Wheels, Polly Pocket along with several Disney, Comic Book and Cartoon characters and related products.
Strong from a record year in terms of sales for 2012 (over $7 billion), Mattel continues to grow its numbers year after year. The biggest part of the growth comes from its “American Girl Brands”. While Barbie is slowing down, Mattel showed up with the American Girl! Since Mattel’s business model sells most of their toys at an affordable price, they also did well in international markets. China, Brazil and India continue to support the international sales.
The management team is led by a cool motto: “My motto is to be happy, but never satisfied”. I think all management teams should keep this in mind!
MAT Stock Graph
MAT Dividend Growth
The dividend payout continued to grow over the past 5 years including some important dividend increases recently (from $0.31 to $0.36 in early 2013). With a payout ratio under 60% (55%) we can expect Mattel to continue increasing its dividend in the future.
When I look at the EPS graphs, you can see a strong uptrend in the past three years:
The Company Ratios and Financial Info:
Ticker MAT US Equity
Name Mattel Inc
Dividend Metrics
Current Dividend Yield 3.18
5 year Dividend Growth 11.46
1 year Dividend Growth 29
Company Metrics
Sales Growth (1 year) 2.47
Sales Growth (5 year) 2.08
EPS growth (5 year) #VALUE!
P/E ratio 17.73
P/E Next Year 14.57
Margins growth 2.68
Payout ratio 55.08
Return on Equity 28.25
Debt to Capital Ratio 0.11
The company shows steady growth in terms of earnings, sales and return on investment. Considering the current market, the P/E ratio is not too high (17.73) and the forward P/E ratio is at an attractive value (14.57). These indicators tell me there might be more room for stock appreciation if Mattel keeps delivering strong numbers.
MAT Stock Technical Analysis
MAT is currently trading on a strong uptrend. It might be a good time to enter this stock. Click here to get a free stock analysis report on MAT.
Mattel Upcoming opportunities and dangers:
Strengths:
In October 2012, Mattel topped estimates and even raised Holiday sales forecasts. With a very strong brand portfolio combined with an increasing consumer confidence, MAT is going through the Holidays with a smile. With its world leader position, Mattel will continue to rack-up the sales in 2013. The dividend payout ratio is low and the 5 years dividend growth (12.28%) shows a strong dividend policy.
What I really like about this company is its ability to grow its sales and profits during a tough economy. Americans have cut back their expenses to pay off their debts while the unemployment rate rages in Europe. Nonetheless, Mattel continues to sell toys worldwide with a smile. This tells you a lot about a company business model’s strengths.
Weaknesses:
The switch from traditional toys to electronic definitely affects MAT. The traditional toy market and most important retailers (such as Toys’R’Us) have been facing slow growth while computer games, gaming consoles and tablet games have been increasing significantly. It will be interesting to see how Mattel will react to this “new” substitution product in the future.
They continue to seek additional partnerships with comic books, movies and other platforms. I think the key issue with Mattel will be how great they will do in a web 2.0 environment in the future. Since their brand portfolio is very strong and diversified, it’s more a matter of switching distribution platforms.
Final Thoughts on Mattel
There is definitely a reason why Mattel was not only selected to be part of my The Best 2013 Dividend Stocks Book but are beating the S&P 500 so far this year. It’s because MAT is showing strong financial metrics. This is an easy business model to understand as kids will always play with toys and Mattel has proven its ability to go through recessions without hurting its balance sheet too much.
Considering its stability and recent focus on increasing its dividend payout, I think Mattel is an interesting stock for my portfolio and meets my Dividend Growth investment model criteria.
In our following posts, we will take a look at Disney (DIS) and Hasbro (HAS).
Disclaimer: I do not hold MAT shares at the moment of writing this article
Good analysis of Mattel. I’m an owner of Hasbro myself and looking forward to your analysis. I purchased awhile back and I think the two companies were pretty comparable with each other and I went with Hasbro because it offered a higher dividend yield and lower current P/E.
My opinion is people will always buy toys for their children. Yes they will now buy things like Leapfrog’s and possibly IPad’s but kids also want things like dolls, action figures, board games and the like to play with as well.
I have a few shares of MAT. It has done very well this year. Great recommendation!
I’m waiting for a pull back too. We’ll see how it goes.