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Hasbro Inc(HAS-Q)

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This High-Yielding Dividend Stock Is Hiding in Plain Sight

Motley Fool - Wed Aug 2, 2023

High-yielding dividend stocks are an important element of any retirement account. But they have other uses, too. For example, last year when tech stocks tanked and the market fell, investors who owned dividend stocks still benefited from their holdings through passive income.

There are more factors to consider when buying a dividend stock than just its yield. You want to make sure it's reliable, for one thing, and another plus is a growing dividend. Investors might be surprised to hear that toy maker Hasbro(NASDAQ: HAS) has just these qualities.

Let's dig in and see if it's a stock you should consider buying.

Welcome to our world of toys and games

Hasbro owns an assortment of toy brands, including Transformers and My Little Pony, and it also markets board games like Monopoly and Clue. But it has changed its strategy over the past years to focus on media and gaming, and it has broadened its mission to driving growth through "games, play, and experiences." That means more than selling pony dolls and action figures although that's still its bread and butter.

It's focusing on increasing engagement with fewer, bigger brands, including Magic: The Gathering, Dungeons and Dragons, Nerf, Peppa Pig, Play-Doh, Transformers, and its other gaming brands. These brands run from little kids to adults or to a category it calls "kidults," and encapsulates the large sector of games geared toward adults. This category is expected to grow at a compound annual rate of 13.1% through 2030, making it a lucrative sector to invest in today. This is where Hasbro is differentiating itself from competitors.

This is also the only place it's seeing growth right now. Gaming revenue increased 12% year over year in the 2023 first quarter, led by Magic: The Gathering, which increased 16%, and Wizards of the Coast. But total company revenue decreased by 14%.

Although consumer product sales decreased 23% from last year in the first quarter, Hasbro is investing in the brands that count, and it has partnerships with companies like Walt Disney to make products based on its popular characters. Some of these include The Mandalorian, Star Wars,
Indiana Jones, Marvel, and Spider-Man. These aren't driving growth right now, but they remain important growth levers for when the toy industry bounces back.

Off its peak game

Hasbro demonstrated dramatic growth in the two years after the pandemic, but it has since faltered thanks to inflation and macroeconomic woes. Retailers are cutting back as they're overstocked, and toys aren't a growth category right now. This is also seriously impacting the bottom line, and that's another area where Hasbro is setting its focus right now.

The company initiated a cost-savings plan it titled the "Operational Excellence Program" to create $250 million to $300 million in annual run-rate savings by the end of 2025. It delivered $35 million in savings in 2023's first quarter and is on track to deliver $150 million by the end of the year.

Hasbro posted a disappointing net loss of $22 million in the first quarter, its first net loss in a while. It's guiding for a single-digit sales decline for the full year and for adjusted earnings before interest, taxes, depreciation, and amortization to be flat year over year.

A high yield, but should you buy the stock?

Hasbro has been paying a dividend since 1977, but it hasn't been steady or raised consistently, so it's not going to get into the exclusive Dividend King club anytime soon. However, it's reliable for payment and hasn't missed a dividend payment since 1980. That's an excellent track record.

The dividend is important to management, and it's careful to balance its cash reserves to be able to cover business operations, invest in new ventures, pay down debt, and pay the dividend. It's anticipating operating cash flow of $600 million to $700 million for all of 2023, which is ample to take care of expenses and maintain the dividend.

Hasbro's dividend yields 3.3% at the current stock price, which is more than double the average S&P 500 yield.

So how should investors add this all up? Hasbro has demonstrated the ability to think out of the box and bring its business to the next level while maintaining profitability, so while it's struggling now, the future looks bright. Add to that a high yield and the dependability of its dividend, and this could be a compelling thesis for income investors.

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Jennifer Saibil has positions in Walt Disney. The Motley Fool has positions in and recommends Walt Disney. The Motley Fool recommends Hasbro and recommends the following options: long January 2024 $145 calls on Walt Disney and short January 2024 $155 calls on Walt Disney. The Motley Fool has a disclosure policy.

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