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Stock Strategist Industry Reports

Mattel and Hasbro Evolve to Stay in the Game as Children's Play Changes

Operational improvements, emerging-market exposure, cash flow stability, and attractive capital deployment offer opportunity.

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While traditional toys do not represent a fast-growth business, revenue and cash flow stability for companies in this industry provide a compelling story for investors seeking a dividend opportunity with measured growth. Over the past five years, Mattel (MAT) and Hasbro (HAS) have cumulatively returned $3.4 billion and $2.6 billion, respectively, to shareholders by the way of dividends and share repurchases, and we view their capital allocation discipline as impressive. While some of the legacy toys may not seem very interesting at first blush, loyalty is a key sales driver for many products under these companies' umbrellas, and the fact that children who are very dedicated to these brands (and have a lack of economic sensitivity) are the end users supports our thesis that many of Mattel's and Hasbro's brands will grow for years to come. We expect both companies to maintain their narrow economic moats over the foreseeable future, thanks to their scale and brand strength.

Mattel and Hasbro Continue to Strengthen Their Operations
In a fragmented industry that is becoming increasingly competitive, toy companies have found it imperative to reinvent themselves and adapt to changing consumer preferences while improving their cost structures.

Jaime M. Katz does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.