Mattel: With The Dividend Cut, Is It Time To Buy?

Mattel (Nasdaq: MAT) announced during its Investor Day Wednesday that it would be slashing the quarterly dividend by 60% from $0.38 per share down to $0.15 per share. While the cut appears to have been priced in considering the relatively muted response from the market (stock down 2% on the day), this is still an important development in the ongoing decline/recovery of the company. I think the dividend cut is good first step as it will free up more cash, but there's much more work that must be done before Mattel becomes an attractive stock at the current valuation.
I wrote an article back in late January on Mattel as part of my "Buy on the Drop?" segment, and rated the stock as a Sell because of declining revenues, a rising debt-to-equity ratio, and an unsustainable dividend. That article can be read here. Since then, MAT has fallen 15% on further revenue deterioration, a horrible Q1, and now a dividend cut.
Mattel's free cash flow has recently been lagging its dividend payouts, and the company has financed the gaps between FCF and dividends with debt, racking up quite the stockpile with $1.8 billion in long-term debt on the balance sheet. The company's debt-to-equity has been on the rise while revenue, and therefore free cash flow, have continued to fall. This was a textbook example of an unsustainable dividend, and so it seemed inevitable that Wednesday's announcement would be the outcome.
MAT Debt to Equity Ratio (Quarterly) data by YChartsBy... Read more

Older articles featuring MAT: