In a low interest rate environment, a volatile market, and a weak economic environment, investors are looking for quality names with some extra income in the form of dividends. Today we will analyze Mattel Inc. (MAT), and determine if this is a quality dividend idea for your portfolio. Do note that the company is expected to report earnings on October 16th, 2012.
A quick look at Mattel stock: The stock trades at $35.5, close to its 52-week high of $36.25. It trades at a P/E multiple of 14.5x, and a forward P/E of 13x. Its closest competitor Hasbro (HAS) trades at a P/E multiple of 13.5x, and a forward P/E of 12x. Hasbro stock at $37.93 is also trading close to its 52-week high of $39.98. The dividend yield on Mattel is 3.5% versus Hasbro, which yields 3.8%.
Fundamentals that support a strong dividend growth story are the following:
1. The company continues to grow retail share in the U.S. and in the European markets.
2. Gross margin has grown 3-4% year over year.
3. Free cash flow has continued to grow since 2010, with $390 million in 2010, $474 million in 2011, and expected to be in the range of $600-700 million in 2012. This is a result of a disciplined management team.
4. The company has a strong balance sheet with $372 million in cash & cash equivalents. Mattel does have $450 million in debt that matures in the next 1 year, but given the liquidity on the balance sheet and the strong free cash flow generated, maturities seem manageable.
5. The toy industry continues to grow, driven by innovation. Mattel is positioned to benefit from this growth.
We will conclude by saying that given the company’s strong fundamentals, and positioning in the global toy industry, the 3.5% dividend yield on the stock looks attractive.
Risk with the name remains any delay in innovative products, an increase in competition, and a continued weak economic environment.
For those of you looking for other investment ideas in the retail and entertainment industry, take a look here.
The chart below compares share performance over the past year. "D"s mark dividends paid
Written by Kapitall's Sabina Bhatia. Tools provided by Kapitall.