A Stock that Makes You and Your Kids Smile

By Ryan Guenette - July 18, 2012 | Tickers: HAS, JAKK, LF, MAT | 0 Comments

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The opening bell on Wall Street rings to welcome the morning of October 10, 1968, and with it the company that was about to blow the world away with the first indoor ball, known as the Nerf ball. This toy company, known as Hasbro Inc. (NASDAQ: HAS), is just starting to roll out several ground-shaking toys they have up their sleeve, including the Tonka truck and the Mr. Potato Head action figure. The stock opens at a lofty $15.00, as Hasbro’s executives celebrate their new-found fortune.

Now nearly 44 years later, Hasbro is set to open at $33.26. Initial investors in the company have benefited from the several stock splits Hasbro has conducted over the years, making their adjusted starting price $0.24 per share. Based on this statistic, initial investors in Hasbro have experienced 13,758.33% returns, turning $1,000 in 1968 into $138,583.30 today. That small fortune will pay for presents for numerous Christmases in the future. So can Hasbro continue to keep a smile on the faces of its investors?

Stable Growth

In 2010, reported earnings per share reached $2.74. In 2011, Hasbro’s earnings per share grew to $2.82, representing decent 2.92% growth. Hasbro is not going to grow like a weed over the coming years as there is little room left for expansion. Hasbro toys can be found in nearly every developed economy country in the world. In 2012, earnings per share are expected to increase $0.05 to $2.87. Again this displays Hasbro’s caliber of growth, slow but stable. Hasbro’s earnings per share growth from 2011 to 2012 are expected to be 1.77%. This sluggish growth rate is expected to continue into 2013, when the average consensus believes earnings per share will climb to $3.11, presenting an 8.36% year over year earnings per share growth rate. A further pickup in growth is anticipated in 2014, when earnings per share are expected to touch $3.43. 2013 to 2014 year over year earnings per share growth is anticipated to be the highest of all the foreseeable periods, displaying a 10.29% growth rate. Much of Hasbro’s forward looking growth will be derived from emerging market economies such as China and India. As the middle classes grow in these regions, there will be more of a demand for luxury items, such as toys and games.  Hasbro is not going to double or triple in the foreseeable future due to its growth, but will provide solid growth over the forthcoming years. The chart below displays Hasbro’s sales, operating profit, net income, net margin, and operating margin over the coming years.

Rock Solid Dividend

Since the beginning of 1987, Hasbro Inc. has been paying out quarterly dividends. Never has Hasbro halted dividend payments, for any reason. For 25 years Hasbro has made a commitment to its investors, through the chaos of September 11^th, 2001 and the great recession, and gone through with that commitment. Starting at a quarterly dividend of only $0.06 in 1987, Hasbro has grown that quarterly dividend to $0.36. This translates to an annual dividend of $1.44, which at current prices yields 4.33%. In 2013, the average consensus sees Hasbro’s dividend being raised to $1.51 annually, representing 4.86% year over year dividend growth. Again in 2014, the dividend is expected to be raised, this time to $1.63. This again would show significant year over year dividend growth, this time 7.95% growth. Hasbro’s underlying growth will help make the dividend growth sustainable, which will allow Hasbro to continue to pay and grow its dividend. The cold hard truth is that the 10 year treasury yields 1.53%. Putting money in Hasbro gives the investor nearly 3 times the yield they would get in a 10 year treasury, and allows the investor to make money from Hasbro’s upward long-term moves. The chart below displays Hasbro’s earnings per share, dividend, and rate of dividend (the percentage of net income that is paid out in the dividend) over the upcoming years.  

Is Hasbro on the Island of Misfit Toys?

Compared to Hasbro’s main competitors such as: LeapFrog Enterprises Inc. (NYSE: LF), Mattel Inc. (NASDAQ: MAT), and JAKKS Pacific Inc. (NASDAQ: JAKK), Hasbro compares favorably. 

Earnings per Share Comparison

Based on $1 Starting Point

Hasbro does not have the fastest growing earnings per share in the industry, but possesses stable and secure growth. Other companies with more accelerated growth rates, such as LeapFrog, are more vulnerable to huge disappointments, as expectations are so high. All in all, Hasbro has stable growth, and is making money, not losing it.

Dividend Comparison

Based on $1 Starting Price 

Hasbro’s dividend is the largest one in the industry, and is growing at the second highest pace. Hasbro’s dividend will prove to be the main catalyst for the stock over the coming years as Hasbro’s growth is lackluster compared to some of its competitors. When push comes to shove, Hasbro Inc. is not the leader of the toyland in growth, but has a healthy growth rate that will support substantial growth in its dividend.

The Foolish Bottom Line

Hasbro Inc. has been a public company for 44 years, and has been paying out dividends for 25 years. Hasbro is not going to offer the caliber of growth that is has in the past, but will offer secure growth that will support Hasbro’s growing dividend. Hasbro is not going to make its investors wealthy enough to buy a million Mr. Potato heads, but should offer long-term gains that will bring smiles to the faces of the investors.     

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