Dividend Suspension A Hard Pill To Swallow For Mattel Investors

Mattel, Inc. MAT's attractive dividend yield of more than 4.5 percent is now off the table. While many had seen the dividend elimination a real possibility given the company's ongoing struggles in a difficult environment, the company made the wise decision, UBS's Arpine Kocharyan said in a research report.

Kocharyan maintains a Buy rating on Mattel's stock with an unchanged $22 price target as it was clear management would be taking prudent steps to cut costs. Specifically, the hiring of Joseph Euteneuer as chief financial officer in early October was "telling of perhaps a more aggressive clean-up approach."

Mattel is now taking even more steps to boost its financial flexibility and its dividend reduction will free up an extra $50 million a quarter, the analyst said. In addition, management is seeking out alternative forms of financing such as ABL if it is subject to a rating cut and the announcement of a new $650 million cost-cutting initiative over a two-year period.

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"This, however, is the medicine we believe many were waiting for Mattel to take," Kocharyan wrote.

While a dividend reduction is no doubt a hard pill for investors to swallow, especially given the stock's 15-percent plunge on Friday, Mattel's management is now able to reset expectations amid aggressive cost-cutting targets, the analyst said. But if the company is unable to show favorable results from its cost-cutting objectives within the next 12 months, it "puts under question Mattel's ability to recovery earnings base, as top line recovery could take more time."

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