Shares of Mattel (NASDAQ:MAT) plunged nearly 20% on Jan. 26 after the toymaker posted dismal fourth quarter earnings. Revenue fell 8.5% annually to $1.83 billion, missing estimates by $130 million. Its adjusted earnings declined 20% to $0.52 per share, missing expectations by $0.19. CEO Christopher Sinclair attributed those soft numbers to a "significant" slowdown in the U.S. toy market, tough currency headwinds, and aggressive promotions.

Mattel's Barbie has seen better days.

Image source: Pixabay.

However, Mattel's recent decline inflated its forward dividend yield to 5.7%, which is much higher than Hasbro's (NASDAQ:HAS) 2.5% yield and the S&P 500's 2% yield. Does that make Mattel an "accidental" high yielder which represents a safe income play? Or is the stock a high-yield trap with much more room to fall?

A closer look at Mattel's dividend

Mattel's yield has varied greatly over the past three years, but its current trailing yield hovers near a 52-week high. The stock briefly yielded a whopping 7% in the second half of 2015.

MAT Dividend Yield (TTM) Chart

Source: YCharts

Unfortunately, Mattel's stock price also declined 38% over the past three years -- which would have wiped out any dividend gains. By comparison, Hasbro's yield is much lower, but its stock rose 62% during the same period.

To see if a company's dividend is sustainable, we should check its payout ratio -- the percentage of its earnings which are spent on dividend payments. Over the past 12 months, Mattel spent 145% of its earnings on dividends. It also spent about 225% of its free cash flow on dividends in 2016. Those numbers indicate that Mattel is supporting its dividend with debt, which is alarming since its debt-to-capital ratio hovers near a 15 year high.

MAT Debt To Capital (Quarterly) Chart

Source: YCharts

All those red flags indicate that a dividend cut is imminent. Mattel also hasn't raised its quarterly dividend since early 2014. Hasbro, on the other hand, has a much more sustainable payout ratio of 46%, and has raised its dividend annually for seven straight years.

Can Mattel's growth be stabilized?

Last quarter, Mattel's top line growth was crushed by the strong dollar. Revenue at its three core businesses -- Fisher-Price, Wheels, and Barbie -- all rose year-over-year on a constant currency basis, but declined year-over-year on a reported basis. It also lost its Disney Princess license to Hasbro last year, which reduced its annual sales by about 7%, and sales of its once-popular Monster High dolls are waning.

Meanwhile, Mattel's inventories have gradually risen over the past few years. Its total inventories of $613.8 million last quarter represent a 4.5% increase from the prior year quarter. Mattel is trying to clear out these inventories with discounts, which has throttled its earnings growth.

MAT Inventories (Quarterly) Chart

Source: YCharts

But despite all that gloom and doom, some analysts are optimistic about Mattel's chances at a turnaround. Last September, Monness Crespi Hardt analyst Jim Chartier believes that Fisher-Price and Barbie sales could potentially rebound this year and boost its 2017 revenue by 10%. That's significantly higher than the 7% growth most analysts are expecting.

On the bottom line, analysts expect Mattel's margins to stabilize as it diversifies its portfolio with new product lines. As a result, its adjusted earnings are expected to rise 45% this year -- which would bring its payout ratio closer to 100%. By comparison, Hasbro's revenue and earnings are expected to respectively rise 5% and 9% in fiscal 2017.

The valuations and the verdict

Mattel currently trades at 25 times earnings, which is higher than Hasbro's P/E of 23 and the industry average of 22 for toymakers. But looking ahead, Mattel trades at just 15 times earnings -- if it meets analysts' expectations for a bottom line recovery. Hasbro has a slightly higher forward P/E of 18.

Mattel doesn't look expensive, but it still isn't an ideal stock for income investors. Its high payout ratios, rising debt levels, and a lack of dividend hikes all make it look like a high-yield trap. Mattel might post better growth this year, but that recovery relies heavily on its ability to expand beyond Barbie, Hot Wheels, and Fisher-Price toys. In my opinion, investors looking for a more reliable (albeit slightly pricier) toymaker should stick with Hasbro's more resilient portfolio of Transformers, Star Wars, Marvel, and Disney toys instead.