The company's recent dividend history has been marked by turmoil. Following the disastrous takeover of The Learning Co. in 1999, the company swung from a quarterly dividend to an annual one, and at the same time slashed the payout in an effort to save $130 million a year. Two years later, though, it boosted the dividend to $0.40 and the company has now increased it once again.
While Warren Buffett is not fond of dividends, believing the capital could be better spent reinvested in the company, Mathew Emmert recently pointed out that dividend paying companies have been solid performers over the years. They account for 42% of the market's total return since 1926 while the S&P 500's dividend payers have nudged out non-payers by 3% per year for the past 25 years. Matthew's Motley Fool Income Investor newsletter has been beating the market handily by investing in dividend-paying companies.
Master value investor John Neff also liked the dividend, noting that as investors price stocks almost solely on the basis of earnings growth, the dividend was a "free plus" -- returns over and above initial expectations.
It was one of the reasons Philip Durell chose Mattel as his first pick in the inaugural issue of Motley Fool Inside Value, noting the company now employs excellent cash managers who also instituted and expanded a share buyback program.
Without question, the toy industry has been sucking wind lately. Toys "R" Us
By raising the dividend, Mattel's management is signaling its belief in the fundamental soundness of the company in the face of sagging sales of its flagship Barbie brand. As it rights its ship, Mattel investors can enjoy the "free plus" in the meantime.
Fool contributor Rich Duprey does not own any of the stocks mentioned in this article.