In the toy industry, two companies, Mattel (NASDAQ:MAT) and Hasbro (NASDAQ:HAS), reign supreme. However, the toy war appears to be going Hasbro's way right now. Hasbro has enjoyed strong growth over the past few years, thanks to its popular toys, including its Star Wars and Jurassic Park products. Meanwhile, Mattel seems to be going in the opposite direction, due to continued declines in its flagship Barbie brand.

MAT 1 Year Total Returns (Daily) Chart

MAT 1 Year Total Returns (Daily) data by YCharts.

This means Hasbro's dividend growth is outperforming Mattel's, right alongside their respective fundamentals.

Better dividend growth stock: Hasbro
By a wide margin, Hasbro is a better dividend growth stock than Mattel. Over the past five years, Hasbro increased its dividend by 12% compounded annually. In comparison, Mattel hasn't raised its dividend since 2013, as a consequence of its slowing growth. Hasbro has been able to increase its dividend at high rates thanks to its strong growth of revenue and profit. Diluted earnings per share grew 8% over the first half of this year.

Hasbro does an excellent job of generating free cash flow, which is very important to growing dividends. Over the first half of 2015, Hasbro produced $168 million of free cash flow. Its dividend cost the company $110 million in this period, which equates to a comfortable 65% free cash flow dividend payout ratio.

For its part, Mattel reported a $69 million loss over the first six months, which explains its slowing dividend growth. The challenge for Mattel is to restore the Barbie brand, which has seen sales crumble this year. Worldwide Barbie sales fell 11% just last quarter. In an effort to turn itself around, Mattel is spending a lot of money on advertising and other restructuring expenses. This has caused the company to bleed cash. Over the first six months, Mattel generated negative free cash flow to the tune of $354 million.

Mattel's dividend advantage
To be sure, this dividend battle isn't completely one-sided. Mattel has a big advantage over Hasbro in one key area: current dividend yield. Mattel's falling share price has been disastrous for investors, but the good news is that its stock price decline has elevated its dividend yield to rare territory. At a recent closing price, Mattel stock was yielding a whopping 6.5%. Mattel's dividend yield towers above Hasbro's, which is relatively puny by comparison.

MAT Dividend Yield (TTM) Chart

MAT Dividend Yield (TTM) data by YCharts.

Of course, the critical question now is whether Mattel's dividend yield is sustainable. When a dividend yield reaches that high, it's often a sign of investor concern that the company will cut its dividend. Considering Mattel's weak fundamentals, investors can't rule out the possibility that the company will have to cut its dividend to preserve cash.

Mattel wins on dividend yield, but tread carefully
Mattel's 6.5% yield is much higher than Hasbro's 2.2%. Of course, the trade-off is that Mattel's higher dividend yield carries a much higher risk of getting slashed. Mattel is in the process of a turnaround, but the results have not shown up yet. The company is burning through cash, and Mattel's current dividend cost the company $257 million over the first two quarters of the year. Mattel needs as much cash as it can get its hands on, and a dividend cut is one of the easiest ways to raise cash.

As a result, income investors looking for a reliable, steadily growing dividend should pick Hasbro, while only risk-averse investors should consider Mattel at this point.

Bob Ciura has no position in any stocks mentioned. The Motley Fool recommends Hasbro. The Motley Fool owns shares of Hasbro. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.