Mattel: Compelling Products, Cash Flow, Valuation and Dividend

Asif Suria has written this bullish article on Mattel Inc. (MAT), which I own. The immediate reasoning for buying Mattel is the so called "TMX Elmo", which is expected to be a big hit. I don't have kids so I wouldn't know. But I do know of a few long-term reasons to buy and hold Mattel.

Here's a company that generates positive cash flow and uses the cash well. They pay a dividend and grow it consistently. They buy back shares and they make what I consider to be sensible acquisitions, like the recent Radica deal, to improve their already impressive portfolio of toy brands.

I would be a happier shareholder if they started paying the dividend on a quarterly rather than an annual basis, as most companies do these days. They should also pay down some of their debt, and give the agencies a reason to raise their current BBB-ish credit rating. Despite these issues, Mattel still offers dividend investors a good chance of future dividend hikes, to go with the current yield of 2.5%.

It's not often that investors get the chance to make a play that falls into so many categories: to buy into a technically strong stock, at a relatively low multiple, with above average dividend yield and a new-product buzz to boot.

Throw in whatever value you think the brands - Barbie, Elmo, Fisher Price - are worth, and you get a trade that I find very very difficult to reason the other side of.

Disclosure: Author is long MAT

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[Stan Ross:]

Sounds like performance-chasing to me. Personally, if I had a positive long-term outlook on the company, I'd buy on weakness but not when we're this close to holiday season and not when the stock's been up 20-plus percent.

2006 Oct 09 02:49 PM