Monday, February 11, 2013

Ka-Ching! Hasbro just gave me an 11% raise

Yep, another one. Three straight weeks of double digit dividend increases. Getting tired of these? I know I'm not! 

Hasbro (HAS) announced last week that it would be increasing its quarterly dividend by 11% from $.36 to $.40. The size of this increase is likely a surprise to many since the company reported a decrease in full-year revenue and earnings for 2012 vs 2011. Despite the drop management still had no problems with making such a large increase which I believe should be viewed as a positive for 2013 and beyond.

When I first analyzed Hasbro last June and decided to buy I was able to get in just before the stock price popped. Many investors would have been thrilled at the immediate price increase, but honestly I was hoping for the price to come back down so I could buy more on the cheap. My original buy price was under $33 which now gives me a yield on cost of almost 5.0% for my original investment. My only other purchases since then has been the automatic dividend reinvestments.

When I analyzed Hasbro I noted that there didn't need to be earnings growth to justify an increase in their dividend due to their free cash flow payout and debt to total capital numbers. The new fiscal year is an important one for Hasbro though as I believe they need to establish growth once again to justify another double digit dividend increase. Future increases will likely be more tied to the overall earnings growth. The company has implemented a cost-savings plan that will deliver "$100 million in annual savings by 2015” according to their CEO Brian Goldner. The success of this cost-savings plan will likely have a direct affect on the size of future dividend increases as well.

With the recent dividend increase Hasbro is again yielding 4% at current prices. Investors looking for income in that range should feel safe investing at current valuation. Dividend growth investors should feel comfortable getting in a current levels as well, but its likely that future increases will be more tied to earnings growth than increases in the payout ratio.

Disclosure: I am long HAS

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