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Who doesn’t like toys? Yes, even in a digital world awash in mobile games and Pokemon Go, there is still a market for good old-fashioned physical toys. That means there’s an opportunity for investors to make money.
Many investors are already catching on to this, and toy stocks reflect that. Hasbro (NYSE: HAS) and Mattel (NYSE: MAT) have both seen their stocks soar more than 18% in 2016 — outperforming the S&P 500 by sixfold.
Dividends To Play With
But the real beauty here is that major toy makers offer investors enticing dividends. Hasbro pays a 2.5% dividend yield and Mattel delivers a whopping 4.6%.
Hasbro is the maker of My Little Pony and Mattel has the Barbie brand. Hasbro did hit some bumps recently with an earnings report in which it announced it was losing its deal to make Jurassic Park toys. However, Hasbro has other prominent toy deals including an agreement with Disney (NYSE: DIS) to produce Frozen dolls and Star Wars toys.
Mattel, on the other hand, is gaining strength with Barbie, thanks to a new lineup for the doll. However, the rest of Mattel’s products aren’t selling all that well, especially after the loss of the licensing Disney’s Frozen dolls — the contract that Hasbro won.
Hasbro will be able to piggyback on Disney’s successes as Disney launches several high-profile movies set to hit theaters over the next year, including the latest Star Wars film and Frozen sequel.
If choosing between two toy stocks, Hasbro and Mattel, the best bet looks to be Hasbro. Hasbro is the better storyteller and it focuses on more role-playing toys. However, there could be an even better pick in the toy-related industry to own today.
The Only Toy Stock to Own
Disney might actually be the best stock play related to the toy industry. It only offers a 1.5% dividend yield, but shares have been crushed this year. The stock has moved in just the opposite direction of Mattel and Hasbro, having fallen fall 7% in 2016. Over the last year, Disney shares have slumped 18%.
Of course Disney is more than a toy stock. Disney is an entertainment and media giant that plays an outsized role in the toy industry. Trading at 16 times next year’s earnings estimates, Disney is also cheaper than any of the major peers among toy stocks. Hasbro and Mattel both trade at 18 times earnings.
Again, the key for Disney is that it’s leveraged not just to the toy market, but also theme parks, films and cable networks. It’s an entertainment giant. The biggest overhang right now for Disney remains ESPN. The key is to find a way to tap into the streaming market with its own offering. Then there’s the succession plan for CEO Bob Iger, who plans to retire in 2018, However, both these things are just near-term issues.
Where else can you find a more robust portfolio of icons? Disney’s lineup includes Mickey Mouse, Cinderella, Capital America and Han Solo. Disney’s investments in theme parks, which includes Shanghai Disneyland, has helped it gain more of an international presence, plus its resiliency in putting out feature films helps support its toy business.
So, while some will argue that the physical toy market feels the effects of digital competitors, it’s still a rather timeless market that will have its ebbs and flows. Meanwhile, the toys and consumer products division of Disney is supported by the films and theme parks. It is a master of businesses and product lines with synergies benefiting its toy products.
Disney shares have been hit hard recently and Disney stock hasn’t traded this cheaply — on a valuation basis — in over three years. Disney has a safe dividend and is your best play in the toy market.