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Andrew Willis: Some may be surprised to see a near-five percent annual dividend yield on a toy maker. Aren’t kids these days more into TikTok and online gaming?
With the digital properties at Hasbro (HAS), we’re not talking about the same company that launched Mr. Potato Head seventy years ago. The company’s been dominating the big screen, protecting its biggest brands, along with a venture into television with Discovery Family.
Senior equity analyst Jaime M. Katz says things like strong film launches support a rising cash flow.
Dividend stock investors can also look forward to international growth and take comfort in a moat that involves partnerships with the likes of Star Wars, Marvel and Disney.
For Morningstar, I’m Andrew Willis.
Bulls Say
- Opportunities exist from entertainment, bolstered by the Discovery Family network, owned production capabilities, and film tie-ins, supporting product demand.
- Stock ownership is compelling for income investors. The firm has a more than 5% yield and has paid out around $1.8 billion in dividends in the past five years. The dividend payout ratio should remain around 40% over the long term as free cash flow rises.
- The firm enjoys a stable expense base and should be able to leverage operating margins to above 20% as higher margin games become a larger percentage of the total sales mix.
Bears Say
- The market for traditional toys could continue to shrink as a percentage of the total as technology plays a more dominant role in product selection and children shift to more digital toys at a younger age.
- The consolidated retail channel leaves Hasbro at the mercy of its largest outlets (Hasbro's top two retailers account for around one fifth of sales), which could affect profits, depending on demand for promotional spending.
- Dislocation from the supply chain and bloated retail network inventories could intermittently weigh on profits, particularly during periods of economic duress