Is There a Winner of the Toy Wars?

Bob is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The U.S. toy market is dominated by two companies: Hasbro (NASDAQ: HAS) and Mattel (NASDAQ: MAT). It’s extremely likely that you’ve come across one or more of the toys and games these two companies produce and market. Hasbro has a product portfolio that most consumers would easily recognize: games including Monopoly and Scrabble, and toy brands including Nerf and G.I. Joe. Meanwhile, Mattel’s stable of great brands includes Barbie, Hot Wheels, and the Fisher-Price and American Girl brands.

The toy industry in the United States is a bitter fight between these two rivals. When it comes to these two industry titans, investors have a tough choice to make: Hasbro or Mattel?

No clear leader in this toy story

Hasbro and Mattel are both off to great starts to 2013, rising 33% and 26%, respectively, just since the beginning of the year. Mattel and Hasbro are both highly profitable companies that superbly reward their shareholders with rising dividends over time.

Mattel has raised its dividend four years in a row, and the company’s first-quarter dividend represented a 16% increase over the prior dividend level. Furthermore, Mattel steadily buys back its own stock, providing further shareholder returns. Mattel bought back $9 million worth of its own shares during the first quarter of the year.

In the arena of shareholder returns, Hasbro is no slouch either. The $6 billion company has also raised its dividend four years in a row, and has actually provided greater dividend increases than Mattel lately. Hasbro last raised its dividend 11%, but its previous three dividend raises were each at least 20%.

And, like Mattel, Hasbro also actively repurchases its own stock: the company bought back $20 million of its own shares during the first quarter, with $107 million remaining available in the current share repurchase authorization.

Few degrees of separation

When it comes to valuation, these two stocks share similar characteristics on that front as well. Mattel trades for 20 times trailing earnings, and Hasbro exchanges hands for 19 times earnings. Their dividend yields are similar too, as they both provide new investors with yields slightly above 3% at recent prices.

Their recent quarterly results are where prospective investors can begin to see some differences, although not drastically so. Mattel reported first-quarter revenues increased 9% year over year, whereas Hasbro was only able to realize 2% revenue growth as opposed to the first quarter of 2012.

That being said, both companies continue to see pronounced success outside the United States. Future growth opportunities are likely to be greatest in the emerging markets, in developing economies where millions of people are entering the middle class. True to form, Hasbro realized double-digit growth in revenue in the emerging markets during the first quarter, and Mattel’s International Region saw 9% gross sales growth in its own first quarter, year over year.

Of course, it’s the crucial holiday sales season that matters most to both Mattel and Hasbro, as the holiday period traditionally accounts for the majority of toy makers’ annual sales. But at this point, it’s so far, so good for both stocks. They’re performing well to start the year, both in terms of their share price performances as well as their underlying fundamentals.

As of now, it appears that investors can find a lot to like with both Mattel and Hasbro. They each reliably increase sales, and funnel that growth through to shareholders in the form of rising dividends and hefty share buybacks. As a result, investors should consider both stocks to be winners and worthy of investment consideration.

The Motley Fool's chief investment officer has selected his No. 1 stock for the next year. Find out which stock it is in the brand-new free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company.


Robert Ciura has no position in any stocks mentioned. The Motley Fool recommends Hasbro and Mattel. The Motley Fool owns shares of Hasbro. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus

Compare Brokers

Fool Disclosure