Should you invest in toys?

Toy companies pay decent dividends and are expected to raise prices this year without hurting sales.

By Kim Peterson Feb 16, 2012 2:34PM
Image: Teddy Bear (© Fancy/Veer/Corbis/Corbis)Toy prices are expected to rise in the next couple years, mostly because the people who make them -- factory workers in China -- are seeing the minimum wage soar 20%.

But toys are a funny thing. Even when prices rise, parents still buy them because they want to keep their children happy. When it comes down to it, parents will sacrifice a purchase for themselves instead of giving up that new toy for their children.

The toy industry is a tough business with very slim margins. It's not for the investing faint of heart. Still, look at the fortunes of the two biggest toy companies in the last two years. Mattel (MAT) has seen shares rise 51% to $32.63. Hasbro (HAS) hasn't had that kind of run -- with shares essentially flat at $36.07 -- but it seems to be coming off a bottom.

Both companies will likely raise prices by 6%, Reuters reports. Sales should hold steady despite the increase.

"What makes these companies attractive is that they tend to be fairly resilient and they throw off buckets of cash," one UBS analyst told Reuters.

Mattel's dividend yield is 3.8%, and Hasbro's is 4.1%.

If you don't want to buy these stocks directly, you might consider a fund that favors them. Reuters notes that Mattel is about 2% of the Principal Equity Income fund (PEIIX), and Hasbro is 2.5% of the Ave Maria Rising Dividend fund (AVEDX).

The toy industry is in the midst of some big changes. Children seem just as happy with an iPad as with an Easy Bake Oven, and there are some very good apps tailor-made for just about every age group.

You could almost count Apple (AAPL) as a toymaker, with all the kid-friendly games and other apps available for iPads and iPhones. The toy industry is fully aware of this, and Mattel is now making products that are compatible with Apple devices, Reuters reports.

The growing interest in phones and tablets is hurting some traditional video-game companies. Nintendo (NTDOY), for example, posted its first-ever annual loss in January.

The surge in digital games isn't enough to threaten the dominance that Mattel and Hasbro have on the toy industry. But times are changing. The maker of the "Angry Birds" line of games wants to go public, for example, and soon toy investors will have many more options.
8Comments
Feb 16, 2012 2:55PM
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Apple's a toy company and doesn't pay decent dividends or wages!
Feb 16, 2012 3:47PM
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"The growing interest in phones and tablets is hurting some traditional video-game companies. Nintendo, for example, posted its first-ever annual loss in January."
This debate is ongoing but as console user I don't see tablets and phones as the reason for Nintendo's (or other console companies') losses. The majority of a console company's money comes from regular users, not casual (Nintendo has started to acknowledge this but it's a work in progress). I'm not giving up high quality games to play Angry birds, these seem to be the opinions of people who don't know or care about the products they are referring to.
Nintendo's loss comes from a lack of good new Wii games and an embarrassing loss for their3DS system which they repeatedly apologized for (which actually seemed to lower their stock instead of bringing it up).

Feb 18, 2012 11:23AM
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I invested in toys.  I bought Star Wars figures by the case for 25 cents a figure in 1985 when stores couldn't even give them away.  20 years later It helped me invest in other toys like sports cars rental property.  The R.O.I. on those figures is equal to, if not better than, if I would have bought AAPL in the mid 80's.
Feb 16, 2012 3:34PM
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Kids are becoming more tech oriented. I just bought my 11 year old a Kindle Fire for his birthday. I do wonder how this affects toy companies.
Feb 18, 2012 1:14PM
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invest but don't open as value decreases sharply.I have kept a lot of my grown children s stuff including a case
 of Star Wars figures. I kept them because they were interesting and had sentimental appeal not because they had future worth . Now my oldest son could make a small fortune on E bay but refuses to part with them
Feb 16, 2012 3:57PM
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Urchinsub: Yes, Nintendo's losses were due to a variety of factors (an aging console, a lack of exciting software, and 3DS issues). But I think tablets and phones are a real threat as well. We're easily heading to a point where parents would rather put 10 apps on their iPads for their kids instead of buying them a handheld.

Regular users are still there, but future users (kids mostly) are finding lots of entertainment on non-Nintendo platforms.

Feb 18, 2012 3:59PM
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"Apple's a toy company and doesn't pay decent dividends or wages!"

 

If you are referring to Foxconn the last I saw, that company is NOT apple.  Apple cannot be held responsible for what its suppliers pay their employees.  I guess by your argument ANY company doesnt pay decent wages since they often buy office supplies from places like Walmart who don't pay "decent" wages.  Get a life, get a clue and move on from your petty hate party of Apple.

Feb 18, 2012 9:19AM
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I invest in toys. I have about 300 fashion dolls.
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