Do you know what Hot Wheels, Matchbox Cars, Barbie, Polly Pocket and American Girl have in common? They are all owned by a company called Mattel (MAT) and I am here to dive into this playful stock to see what bin of hopefully positive findings come from it. They are one of the world’s most renowned toy products seller and their portfolio is very expansive. Let’s take a look…
From using our Dividend Stock Screener attributes, let’s analyze Mattel:
Dividend Increases: When it comes to dividend increases – they have done this since the glory year of 2002 – back when they were a once a year dividend payer at a nice “heavy” clip of $0.05 per share! Hold your WWE wrestling figures on that one! However, they switched to quarterly dividends in the year 2011 and now are paying $0.38/quarter for an annual amount of $1.52 per year, a HUGE jump from the $0.05. I would confidently say that 12 years of dividend growth isn’t too shabby and it’s nice knowing they’ve done it 10+ years. The 5 year dividend yield rate is approximately 3.72%. As of market close on Friday, the current yield is 3.88%, so they are yielding larger than their historical 5 year yield, which shows a sign of value.
Brief Q1 Background: They had a rough first quarter, as total sales were $50M below last year’s first quarter, and actually showed a net loss for the Q as well. This is due to cost cutting on their Mattel owned inventories and attempts to clear out of old inventory. From the 10Q “From the commencement of Operational Excellence 3.0 through March 31, 2014, Mattel has realized approximately $76 million of cumulative gross cost savings. Mattel continues to be on track to realize approximately $175 million in sustainable cumulative gross savings by the end of 2014.” I believe this is highly beneficial for Mattel as they continue to go through the consumer spending cycle which is new in a sense with the given economic conditions. However, with them having realized approximately $76M already out of their cost savings plan of $175M from Q1 alone – I am betting they will hit their goal, and potentially exceed it.
Price to Earnings (P/E) Ratio: Current price as of market close on July 11th = $39.13. Diluted earnings per share at 2013 = $2.58 and analysts are estimating $2.43 this year, with a $2.72 estimate next year. If we average current forecast with prior year = $2.50 rough figure to use. $39.13/$2.50 = 15.65. This is below the S&P on average and is also less than Hasbro’s P/E of 22. This falls within our screener, and provides a “Green Light” here, we will see if the hot wheels on this stock can roll further to the next screens.
Dividend Yield: Again, we like to see the dividend yield above the S&P 500 as a whole, which currently is at 1.90%. Therefore, Mattel is more than double that. With 12 years, I am sure they are suited to raise the dividend further this year as well. 2nd Quarter results should paint a pretty picture of what earnings will be like the rest of the year, but 4th Quarter – being with Toys and Holidays is the ultimate quarter to see. The yield of 3.88% is very solid and is approximately my overall dividend portfolio. The cyclical consumer area is something I don’t own too much of and the competition is not as heavy with Hasbro being the more competitive player. However, based on math alone – the yield gets a check mark here as well. “Green Light”
Payout Ratio: Given the average of the estimate this year and earnings last year, with let’s say $2.50, the total dividend at $1.52, they are just at 60.80%. This shows they don’t give out all their earnings to shareholders and keep some for themselves to reinvest. I would say I am okay on this one, as earnings should be stronger given the large cost cutting measures for the FY 2014 and beyond. I would say “Green Light” here as well. Fisher Price, DC, Scene-It, Scrabble, Spongebob… the list of toys out there for children all over the global should provide the cash to cover the dividend. I’ll rev my Power Wheels to the conclusion. “Green Light”
Conclusion: Interesting play here. I want to see second quarter results to see what earnings were like, further cost cutting measure and revenue from certain areas of the world. I think there is absolute value here, they are down close to 18% YTD (one of few companies who are down) and have risen dividends for quite some time. Mattel has the brands that we all know and loved as a child – and with the population not slowing down – toys are always in, especially with new movies, characters, etc.. that Mattel can spin into a toy, as they have done in the past (Disney Movies (Toy Story, etc). Though I don’t think it’s a Sure Fire into a huge position here, I would be curious to see what a $1K-$1.5K would do for the portfolio. I’ll have to review come 2nd Q earnings and we also have a month and a half before their next Ex-Dividend date. Stay Tuned! What was your favorite toy as a child? Were any owned by Mattel? Those that have children – any of them have toys that are Mattel products? I loved the hot wheels, that’s for sure. I believe I still have a few in the box… thanks for coming by! Would you buy this stock? Always curious Readers!
-Lanny