Every kid in the world owns at least one of the many toy products designed and manufactured by Mattel Inc. Most kids probably have a lot more than just one of these toys in their homes. That's because the products and brands included within the Mattel corporate umbrella Fisher-Price, Barbie dolls, Monsters of the Universe, American Girl dolls, various board games, and WWE toys. Most of these products have been around for decades and they'll probably be around for decades more.
- Mattel has a great dividend yield, great earnings and dividend growth rates, and a P/E ratio in the mid teens.
- Mattel’s business is highly seasonal, with consumers making a large percentage of all toy purchases during the traditional holiday season.
- Mattel’s principal manufacturing facilities are located in China, Indonesia, Malaysia, Mexico, and Thailand and unrest in those countries can disrupt the supply chain.
- Mattel’s three largest customers (Wal-Mart at $1.2 billion, Toys “R” Us at $0.7 billion, and Target at $0.5 billion) accounted for approximately 36% of worldwide consolidated net sales.
Mattel, Inc. (MAT) designs, manufactures, and markets a range of toy products worldwide. The company operates in three segments: North America, International, and American Girl. It also publishes Advice and Activity books and the American Girl magazine. The company offers dolls and accessories, vehicles and play sets, and games and puzzles under the Mattel Girls & Boys brands, including Barbie, Monster High, Disney Classics, Ever After High, Little Mommy, Polly Pocket, Hot Wheels, Matchbox, Tyco R/C, CARS, Disney Planes, Radica, Toy Story, Max Steel, WWE Wrestling, and Batman. Mattel also provides its products under the Fisher-Price brands, such as Fisher-Price, Little People, BabyGear, Laugh & Learn, Imaginext, Thomas & Friends, Dora the Explorer, Mickey Mouse Clubhouse, Disney Jake, the Never Land Pirates, and Power Wheels. The company offers its products under the American Girl brands comprising My American Girl and Bitty Baby directly to consumers via its catalog, Website, and proprietary retail stores. Mattel also sells its products directly to retailers, including discount and free-standing toy stores, chain stores, department stores, and other retail outlets; to wholesalers; and through agents and distributors. The company was founded in 1945 and is headquartered in El Segundo, California. (Daily Chart) (Weekly Chart)
20 July 2014
1yr Target $39.63
1yr Cap Gain 9.48%
1yr Tot Return 13.68%
Market Cap $12.28 Bil
3yr EarnGR 11.40%
5yr EarnGR 19.69%
3yr DivGR 20.48%
5yr DivGR 14.25%
Payout Ratio 62.04%
EPS (ttm) $2.45
EPS next yr $2.80
Mattell competes with several other large toy companies, including Bandai, Hasbro, Jakks Pacific, Leap Frog, Lego, MGA Entertainment, Spin Master, Tomy, VTech, and many smaller toy companies. It also competes with several manufacturers of video games and consumer electronics. Competition among these toy companies is continually intensifying because of the recent trends toward shorter product life cycles for individual toys and an increasing use of high technology in those toys.
Revenues from the sale of toy products at the retail level are highly seasonal. The majority of retail sales occur during the period from September through December in anticipation of the Christmas Season. Any disruption during this period would significantly affect the earnings of the company for the entire year. In addition, Mattel is also highly dependent upon the creation of relevant and timely advertising to produce those seasonal sales.
The toy business can also be affected by any bad decision leading to the underproduction of popular toys or the overproduction of toys that are less popular with consumers. Such decisions can and have been disastrous for toy companies.
Finally, but highly significant, a small number of Mattel's customers account for a large share of Mattel’s net sales. In 2013, the company’s three largest customers (Wal-Mart, Toys “R” Us, and Target) accounted for approximately 36% of net sales. Also its ten largest customers accounted for approximately half of net sales. Any disruption or dispute with any of these customers would significantly affect sales.
Dividends generally moved higher during the 10 year period (2003-2013) with selective periods of increases (2003-2007 and 2009-2013) and a brief period of stagnation (2007-2009). Despite this, the dividend growth rates resulting from some generous increases resulted in a rate higher than the earnings growth rate. This was possible because the payout ratio was allowed to rise from the low 30% to the mid 50% level. Going forward I expect that dividend increases will fall in line with future earnings increases.
- Mattel Inc.
- Hasbro Inc. (HAS)
- LeapFrog Enterprises Inc.* (LF)
- JAKKS Pacific, Inc* (JAKK)
- Gaming Partners International Corp* (GPIC)
*Company does not pay a dividend
I have no exposure to the toy industry and I believe that at this point in time Mattel is a better investment than its rival Hasbro. Mattel's dividend yield of 4.20%, its 3 year earnings growth rate of 11.40%, its 3 year dividend growth rate of 20.48%, and its one year expected return of 9,48% fits in very well with my investing style. With investors supporting the stock near the $35-$36 level, this could be a good point to start a position.
I expect to spend the next few days to see if the stock bottoms out here. If it does and then begins to turn up, I'd really like to be long on this stock. I believe the brands and the products sold by Mattel are literally cash cows and that the company will be selling these toys for decades to come.
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