3 High-Dividend 'Toys and Games' Stocks Set to Rise This Holiday Season

Consumers show every sign this year of being in a spending mood, which bodes well right now for these three leading toys and games makers.
By Chiradeep BasuMallick ,

Toys and games are serious business. To stay competitive, companies in this sector must continually adapt to fickle consumer tastes and rapidly changing technology.

Let's take a closer look at three stocks that are poised to outperform during what's expected to be another "Santa rally" this year.

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1. Mattel Inc. (MAT) - Get Report

For more than 60 years, Mattel has been delighting kids with toys. Today, it generates annual revenues of around $6 billion. In the last 10 years, however, sales have seen a measly 1.67% average growth year-over-year (YoY). Net income has also dipped by 1.37% year over year in this period while earnings-per-share (EPS) has moved forward by a mere 0.72%.

Clearly, Mattel isn't doing great business if the last decade were any indication. So then, why buy this stock?

1. Mattel is a turnaround story in the making.
2. At 15.7 times forward earnings, it's a value pick, given that rival Hasbro trades at a hefty premium of 20 times forward earnings.
3. Mattel offers a solid dividend yield of 6.55%, partly a consequence of the stock's year-to-date price drop of 17%.

The company boasts of rich legacy of time-honored brands as well as offerings like Fisher-Price, Barbie dolls, Monster High dolls, Hot Wheels and Matchbox toys, Masters of the Universe, American Girl dolls, and WWE Toys.

Most importantly, the company is constantly pushing the envelope, charting new territories and testing new ideas -- like launching the talking Barbie. Mattel is already well on track on its cost savings program that should save hundreds of millions.

After a downbeat current year, analysts expect EPS growth to log a 12% rise next year as revenues stabilize. For dividend lovers, this is a stock that's maintained or hiked quarterly dividends for 17 quarters.

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2. Hasbro Inc. (HAS) - Get Report

It's not difficult to figure why the 92-year old Hasbro, one of the largest toy sellers in the world, deserves a place on this list.

On every parameter of value -- trailing twelve month earnings, price-to-sales, three-year average net income growth, operating margin, return-on-assets and return-on-equity -- the $4.4 billion company (in revenues) is better than the industry. At a projected dividend yield of 2.4%, the stock offers decent dividends as well.

A 40%-plus return in one year and 108% smashing return in three years, Hasbro has had a good run of late. How? A portfolio of strong brands such as Monopoly, Magic: the Gathering, Littlest Pet Shop, My Little Pony, and the money-spinning Transformers have hugely strengthened Hasbro's position. It also boasts of a plethora of heavy-hitting licensing pacts -- Star Wars, Marvel, Frozen, Jurassic Park, Disney Princess and many more.

For the long-term, the analysts' consensus calls for Hasbro to grow earnings by 10% (over the next five years) compared to earlier 6.3% for the previous five years.

Over the last decade, dividends have seen an 18% compounded annual growth rate. With its upcoming dividend payment, it will pay a total of $1.78 for 2015, a decent 5% rise from 2014.

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3. International Game Technology PLC (IGT) - Get Report

International Game Technology is an end-to-end gaming company, engaged in providing lottery and gaming technology solutions and services.

In July 2014, the Italian gaming equipment manufacturer GTECH (GTKYY) agreed to acquire International Game Technology for a whopping $6.4 billion. This year in April, GTECH completed its merger with International Game Technology.

IGT saw its net income drop by about 50% in 2014. However, the company updated its outlook for EBITDA in 2015 to $1.605 billion-to-$1.705 billion from the prior range of $1.575-to-$1.675 billion. Capital expenditures for the current year are now estimated at $400 million-to-$450 million compared to the prior expectation of $450 million-to-$500 million.

The 28% stock price drop has made its dividend yield look great at 6.6%. As an investor, free-cash-flow (FCF) generation is what you should watch out for. In this metric, IGT fares well -- for the third quarter, FCF was at $132 million.

The company's cash pile is at a stable place, with cash and cash equivalents at $552 million as of September 30, 2015, compared to $573 million as of September 30, 2014.

International Game Technology is a good value growth stock, trading at less than 9-times forward price to earnings, offering a healthy yield as well.

If you're looking for new ideas in the technology sector, click here now for a free report on a small-cap tech stock that's poised to shake up its industry and deliver outsized gains.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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