Stock Purchase 11/11/14 – Tech & Toys

As you all have come to know – I usually try to throw a little spin to the titles of articles that I write.  First it was Toys & Alcohol, then it was locked, cocked & ready to unload or even CRUSHING $4,000 in dividend income.  I hope that this title doesn’t let you down – Tech & Toys.  It just has a ring to it, doesn’t it?  On November 11, 2014 I had two purchases that went into “play”.

Buying-Stock

 

The Stocks

I recently performed an updated Mattel (MAT) stock analysis, as well as posted earlier this week on IBM.

Mattel Stock Purchase

Why did I purchase Mattel?  Their revenue figures are hurting as the Fisher Price and Barbie brands are suffering as of right now in comparison to prior year.  The stock price closed at $30.75 (11/11), down 35% on the year.   I purchased my first round of stock a long ways back at around $34 and change, thus the 10%+ decline enticed me further, as you read from my updated analysis article.  EPS for the quarter was $0.97 or 6 cents below my estimation and the big holiday quarter is coming up – I expect a solid, not amazing, quarter in the range of $1.02-$1.05 per share.  This places YTD earnings roughly at $2.04-$2.07 for the year and then has a valuation of 15 price to earnings based on that.  I finished reading their 10Q filing and I scooped up more because

  1. They are at $142M in savings from their Operation 3.0 plan to save $175M by 12/31/14.  They are over 81% there and I feel are going to cruise beyond their savings goals, which further will assist in earnings & creates a more lean operation at Mattel.
  2. MEGA acquisition is proving to be a very solid impact to income, as this past quarter received $61,815M vs $61,600 last quarter – to where I am projecting another $60+M this final quarter, especially during the holiday season.  On a yearly basis this could be a $250M+ line for them.
  3. Shares have dropped from $344M at 12/31/12 to $338.8M at 9/30/14.  Mattel has room to continue purchasing it’s own shares back and their repurchase program has no expiration to it.  From reading their cash flow statement, they have purchased $128M of stock back this year and with the price of the stock being where it’s at today – if Mattel purchases more – there is another indication of management feeling the company could potentially be undervalued as well.
  4. The focus to oil the toy machine business back up.  From reading the commentary and analysis – it seems that management isn’t playing around with what they need to do.  They are becoming more lean, fixing inventory issues they had in the past as well as showing the acquisition has been fruitful.
  5. At an estimated $2.04-$2.07 EPS – the payout ratio does creep up a little higher.  I feel I am conservative in my earnings approach and that we will see the engine come 2nd quarter to 3rd quarter 2015.  If they pair more repurchases into the ball game, this would decrease the shares outstanding and increase their earnings per share, thus reducing the payout ratio.  I am okay with that.  I would like to see, as crazy as this sounds, a 5% reduction in shares, if possible, by end of next year.  Sometimes I wish I was Carl Icahn and had that sort of influence!  This would show me a few things: Management’s acknowledgement and confident to investors that they are undervalued.  This is a way to reward your shareholders currently (as normally stock price does adjust upwards) and gives me more of a determination for dividend increases going forward, as they have done so for over 12+ years.
  6. Based on the above items – I am “Pro” Mattel and wanted to average down my position.  Hence – I did.

I purchased 32 more shares of Mattel (MAT) at a total cost of $994.79 and added $48.64 to my projected annual dividend income.

IBM Stock Purchase

I am sure this stock purchase of IBM doesn’t come too much as a shock – considering I posted on Monday regarding a stock analysis on Big Blue.  Last month I initiated a $500 purchase on them when they got smacked by their earnings call and today’s purchase was.. funny, in a way.  Long story short – I had a free automatic trade for Tuesday and needless to say – it triggers once I place cash into that type of investment account and lets just say I moved cash over and, well for lack of better words, it triggered and the bullet was fired or in Mantras words – my BB gun was let loose.  To cut to the chase and not re-iterate what I stated in my analysis this week, here is why this stock purchase was made.

  1. Strong EPS – though the estimates are now lowered and expectation of a $16-$17/EPS is on the docket – IBM still is earning over $16 in earnings per common share!  This is nothing to write off or brush away, that is awesome.  This allows their payout ratio to be absurdly low (27%ish) and allows for ample room for #2.
  2. Dividend Growth – though it is yielding only 2.7% – their growth rate over the last 5 years has been 14%+, incredible and I will take that with a lower yielder, any day.
  3. The current yield of 2.7% is absurdly higher than their historical yield and has never been at this rate before.  Sounds good to me.
  4. Share buy back plan is in full effect, as I briefly discussed above for Mattel – IBM definitely takes advantage of this to increase their earnings and allows them to continue to payout dividend raises that companies wish they can do and shareholders wish they had with every company they owned.
  5. I like this company, plain and simple and want more of it.

This was an additional $500 investment into IBM, to which added $13.45 to my projected dividend income going forward.  This won’t be my last purchase of this beast though, I feel strongly about that!

Conclusion

Well, it was a fun Tuesday for me – as I was able to add $62.09 to my annual dividend income going forward and allows me another step closer to financial freedom.  I will be DRIP-ing these companies, as that is what us Dividend Diplomats do.  Thoughts on these purchases?  Any inside take on Mattel and/or IBM?  Thoughts on Mattel’s strategy?  Any idea on what IBM will be doing in regards to share buy backs and estimated dividend increases next year?  Also to point out – IBM, I believe, will be increasing their dividend in January, just as a heads up!  thank you again for stopping by, it is much appreciated, I love all and any input!

-Lanny

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6 thoughts on “Stock Purchase 11/11/14 – Tech & Toys

  1. Lanny,

    I feel you on IBM. Not much to dislike here. I’m not a huge fan of tech, as it’s my only pure play on technology. However, the company is priced for ridiculously low expectations, so there’s a very low hurdle for them to clear. Plus, the low price further amplifies the additional buybacks. Nice!

    I’m not sure about MAT. I decided a couple of years ago, after looking at HAS, that the toy industry wasn’t for me. I don’t know what that industry looks like 10-20 years from now, as I personally see more and more young children playing with electronics. Some of the fundamentals for MAT and HAS look good, but it’s just a gut feeling on my part. Could work out to be a fantastic investment, though, and I like some of the licensing plays in this industry.

    Keep up the great work!

    Best regards.

  2. DM,

    Thanks for the roll by!

    IBM – luckily I have a small exposure to tech at this point – small investment with Intel and DM – surprisingly I actually went on and purchased another 12 shares of IBM today to bring my total input to IBM at $3K. I am absurdly excited about what IBM can do going forward, and their dividend increase potentially is in January – I think if they dip now into the $150s range, I’ll consider adding more. The buybacks should be exciting!

    Mattel is an interesting play and I do like the “devils” advocate approach. Reading a 10Q isn’t the most exciting thing to do – and the toy industry – is very, for lack of better words – “where is this headed” arena. I am curious with the licensing plays and future electronic market what Mattel can do. I wish I could sit on the board and direct “actions” aka share buy backs, dissolving poor performing business lines, as well as acquisition of major players, etc.. I know have a 3% exposure with Mattel and that earnings release for December should be coming in two and a half months – the big holiday season will be telling.

    Thanks DM – there are a few other dividend plays I have in mind, I have the week off – so I have been reading and reading… a lot. I appreciate your thoughts and input on these purchases, as always. We shall talk soon!

    -Lanny

  3. Hey Lanny,
    I completely agree with everything you said with Mattel. I am also buying up some shares this week on L3. The dividend yield is nice and I am expecting a nice quarter with the Disney Frozen line up. I think they still own the right until December 2015. I hope we are both right on Mat as I feel the toy industry will never die out.

  4. Hey Lanny,
    First time here (I found your site through another fellow blogger).
    I’m wondering if you have considered buying Hasbro (HAS) instead of Mattel and if so, why did you continue with Mattel? I think HAS has more upside than Mattel. MAT seems to have a rough time to adapt to the “new toy industry” while Hasbro is taking advantage of its licence products (they even “stole” Disney Frozen dolls from Mattel. Any thoughts?

  5. I’m not too sure about the Mattel purchase. I think there are better stocks out there to purchase at this time. For example Disney might be better than Mattel. IBM is a solid purchase though.

  6. Pingback: Share Buyback Programs is Big News for Dividend Investors

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