Play Mattel's Strong Dividend Now, Win When It Rebounds Later

Mattel's dividend yield is 6.3%, its share price is off, and the biggest damper on it has been the strong dollar. Betting on a turnaround based on fundamentals looks reasonable.
By Richard Saintvilus ,

Investors who are looking for beaten-down stocks that can outperform the market in the next twelve months -- not to mention ones that  offer great dividend yields -- should consider Mattel (MAT) - Get Report . Known for popular toy brands including Barbie and Hot Wheels, Mattel stock will trade ex-dividend Monday. And with its shares down some 22% on the year, and down 6% in the past six months, now's the time to play Mattel's potential turnaround.

The California-based toymaker pays a solid 38-cent quarterly dividend that yields 6.30% annually -- more than three times the average 2% yield paid out by S&P 500 stocks. Investors of record as of Nov. 25 will receive their dividend checks on Dec. 11. This amounts to roughly 11 trading days between the record date and the payment date, making it a quick turnaround for investors who buy MAT stock just for the dividend. But holding the shares longer is likely to pay off, too.

Mattel -- now trading at around $24 -- hasn't performed as well as investors have hoped, especially when compared to the S&P 500 (SPX) index, which has traded flat on the year. The company's 2015 struggles, however, have had much to do with the strong U.S. dollar that devalues its overseas sales. That's been the case for a host of large multinational companies.

In its third-quarter, for instance, owing largely to the strong dollar, Mattel's international sales plummeted 19%.  But when adjusting for currency fluctuations, the revenue decline was only 2%. All told, foreign exchange had an 8% negative impact on third-quarter consolidated revenue growth (-11% vs. -3%). And the company is actively cutting operating costs to offset the decline.

On a forward-looking basis, Mattel shares are attractive. Fiscal 2016 consensus earnings estimates of $1.39 a share put Mattel's forward P/E at 17, which is on par with the S&P 500 index -- but more to the point, if that estimate is accurate, the company will deliver earnings growth exceeding 12% -- more than twice the projected earnings growth rate of the S&P 500.

From that standpoint, it would seem patience is still the best way to play Mattel. Despite its consensus hold rating, the shares still trade more than 7% below their average analyst 12-month price target of $26. True, a 7% gain wouldn't be breathtaking, but when combined with its 6%-plus annual dividend yield and the prospects of a fundamental turnaround, these shares look worth the wait.

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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