Hasbro (NASDAQ:HAS) is a $10 billion company that's responsible for dozens of beloved brands of children's toys, as well as classic games such as Yahtzee, Trivial Pursuit, and Monopoly. These brands have allowed the company to achieve superior margins -- 9.52% on a TTM basis -- to its more generic competitors.
The cash flow that falls to the bottom line is one part of the equation leading to its success as a company. Effectively deploying that cash into new ventures, a solid dividend, and prudent share buybacks have led to market-beating returns for shareholders in the past. Even with the stock near all-time highs, I expect its market-beating ways to continue.
Solid portfolio of brands
Hasbro owns a portfolio of some of the greatest toy brands in the world. These brands range from classics such as Twister and Candyland to new properties such as Angry Birds Go! to brands that have been reinvented for a new generation of consumers, such as Nerf and Play-Doh.
Many of these brands perform differently domestically and internationally, which gives Hasbro a good deal of geographic diversification. Revenues in Q2 2015 were split about equally between U.S./Canada and International.
The brands also give diversification with regard to gender and age. Sales for girls have been a drag on the company's sales recently, but improvements in sales for the boys and preschool segments have helped to promote overall revenue growth. In the future, it wouldn't surprise me to see the pendulum swing and for the weaker sales area to become one of Hasbro's strengths.
Sales and licensing
Hasbro makes money by selling products, which currently make up the bulk of revenue, and by licensing to other entities for television shows, movies, and other ventures. Entertainment and licensing contributed $47.6 million in revenue in Q2 2015.
This trend will continue with a partnership with Lions Gate Entertainment to produce a Monopoly movie. It's being penned by Andrew Niccol, who wrote The Truman Show, and is being financed by Lions Gate. By not financing the film, this is a relatively low-risk move that should provide cash flow to Hasbro without much effort on its part. This is the power of having valuable brands and letting those brands work for you, something its newest partner knows all about.
20-year Disney partnership
Hasbro recently signed a 20-year agreement with Disney to manufacture dolls from the Disney Princess franchise. This deal begins in 2016 and is a major potential catalyst for the company, because it includes the princesses from the Frozen franchise, which has been nothing short of a phenomenon and should have sequels coming down the pike in the years to come.
Dividend (solid and growing)
Hasbro has been a solid dividend payer since the mid-1980s. In the past decade, it has raised its dividend by an average of 18% per year. Even with very solid capital appreciation, the yield still remains around 2.3%, which is very favorable for a company that still has a great deal of growth potential ahead. I expect many more dividend increases in the years to come, and with a positive net cash position and a payout ratio around 54%, the dividend is safe for the foreseeable future.
Hasbro has also returned capital to shareholders through the prudent use of share repurchases. Management has bought back $3.3 billion worth of shares since 2005. This approach allows for higher dividend payments to holders of the remaining shares, as well as a boost in EPS. During the first two quarters of 2015, management has deployed $46.8 million to retire shares at an average price of $62.64. With the stock currently trading around $80 per share, this move has been accretive to remaining shareholders.
Still a buy?
Investors looking for a solid company with growth potential and a stable and growing dividend would be well served by taking a closer look at Hasbro. I plan to hold my shares for the long term and reap the benefits of capital appreciation, dividend payments, and timely buybacks.