Hasbro has delivered solid financial results thus far in 2015, and licensing tie-ins to Star Wars, Transformers, Jurassic World and Frozen should drive revenue growth going forward.
The company has been growing its dividend for 12 consecutive years, and its financials demonstrate that the 3% dividend is secure.
Mattel's revenue growth is stagnating, net income is declining and its 6% dividend is coming dangerously close to approaching unsustainable levels.
Thanks to movie franchises like Star Wars and Transformers as well as Disney's (NYSE:DIS) Frozen, toy makers have had ample opportunity to pad their bottom lines with licensing revenue.
Hasbro (NASDAQ:HAS) has had more success executing on that front than Mattel (NASDAQ:MAT). It helps that it has a better movie tie-in lineup than Mattel. Hasbro owns the licensing rights to Star Wars, Transformers and Jurassic World, and those three franchises should deliver for years to come. The first Star Wars sequel hits theaters this year, with two more coming over the next few years. There are four more Transformers movies in the works, and a Jurassic World sequel is tentatively scheduled for 2018. Of course, let's not forget about the upcoming Frozen sequel too.
Movie tie-ins have been great revenue drivers, and Hasbro looks like it's set for a while. Mattel, on the other hand, is lacking. It has Man of Steel, but not much else, and even that franchise likely won't move the needle significantly. Mattel's strength was always in its line of Barbie products, but interest in that is beginning to wane as the Disney princesses remain strong and alternate lines like Monsters High gain popularity.
Which brings us to the dividend. On the surface, Mattel's 6% dividend looks like a better deal, but it's starting to reach the point of unsustainability. Hasbro's dividend, on the other hand, has a number of revenue drivers behind and looks secure.
Mattel and Hasbro retained similar dividend payout ratios as recently as last year. Both were around 60%, but since then, they've diverged greatly. Hasbro now sports a payout ratio of under 50%, while Mattel's has skyrocketed to 170% on a trailing 12-month basis.
HAS Payout Ratio (<span href=
Since the beginning of 2014, Hasbro's trailing 12-month net income has jumped 37%, while Mattel's has dropped 64%.
HAS Net Income Chart
The cash flow picture isn't much better. Hasbro's free cash flow payout ratio has gone from around 53% in 2012 to about 63%. That's not an unreasonable number, and is certainly within comfortable limits. Mattel, on the other hand, has gone from a free cash flow payout ratio of 40% in 2012 all the way up at 82% currently. A free cash flow ratio at that rate isn't necessarily unsustainable, but it could be problematic given the way the company's financial landscape may be heading. Mattel's free cash flow levels have actually been relatively steady over the last few years, but the company's recent struggles could change that.
Conclusion
Hasbro's more modest 3% dividend looks like it will be secure for the foreseeable future, and the fact that the company has been raising the dividend for 12 consecutive years should further cement that notion.
I've stated for over a year that I feel Mattel is at risk of a dividend cut. While I don't think a dividend cut is imminent, I also don't believe that a 6% dividend should be counted on going forward. The company's lack of revenue growth and lack of real revenue growth drivers going forward leaves Mattel's ability to continue paying such a significant portion of its financial assets in dividends in question.
Investors looking to grab Mattel's 6% dividend should do so with caution.