This Growth Stock Also Carries A Growing 4% Dividend

The toy industry is also becoming increasingly driven by big-time "hits," with kids clamoring for a popular character they saw on TV or in a movie. In other words, today's toy industry is becoming extremely reliant on multimedia platforms, in particular motion pictures, TV programs and video games. 

Firms that haven't caught on to changing consumer tastes have fallen by the wayside. KB Toys and FAO Schwartz, for instance, fell out of favor by failing to move beyond stuffed animals and board games.

But this wasn't the case for toy giant Hasbro (NYSE: HAS), which has evolved into a full-on multimedia toy maker. 

It's also a great stock to own...

Its primary focus in recent years has been to get its toy brands front and center shelf space in media-based entertainment. It recently breathed new life into its "Battleship" board game with a Hollywood action film of the same name. The Transformers and G.I. Joe brands now also have several movies each under their belts.

Hasbro recently launched a cable TV channel -- "The Hub" -- in partnership with Discovery Communications (Nasdaq: DISCA), one of the savviest TV network creators in the business. The toy maker has been also purchasing the licensing rights to make toys and games for characters it doesn't own. These include Marvel characters like the Avengers, Spider Man and certain Star Wars characters. Most of these brands also sell popular video games, adding another lucrative and growing sales channel. The fact that giant big-box retailers are able to sell most toys and games at a low margin -- or even a loss -- just to get kids and their parents into their stores, can benefit Hasbro with a steady consumption stream from these other media.

As you might expect, Hasbro has seen its old-school game and puzzle sales steadily decline. This category has seen a 13% drop from $1.3 billion in 2009 to less about $1.1 billion last year. But this has been more than offset from the sale of Transformers toys and related merchandise that cater to boys, a segment that has experienced a 25% sales jump from $1.4 billion to $1.8 billion during the past three years. 

International performance has also been outstanding. Sales in 2011 were up 25% to $2.1 billion since 2009, a growth that accounted for close to half of last year's total sales of $4.3 billion. U.S. films and TV are proving popular overseas, so Hasbro's affiliation with these powerful media platforms is turning out to be good for shareholders.

Hasbro's management has also focused on cost-cutting initiatives in recent years. Sales are up a steady 6% annually in the past five years, but earnings per share have jumped 17% each year in this same period -- from $1.29 per share to $2.82 last year. 

Risks to Consider: Toys still count as discretionary consumer goods and could be hit in a severe economic downturn. Hasbro's sales took a slight hit during the recession brought on by the credit crisis, but cost-cutting moves still allowed profits to move steadily forward.

Action to Take ->Hasbro trades at a current price-to-earnings (P/E) ratio of 12, which is quite reasonable given the profit growth it has been posting. To put this into context, Hasbro's five-year average valuation is close to 14, well below the industry average of 19, and below the market average of 14. Management has used much of its earnings to buy back stock and aggressively increase its dividend. Annual payouts of 20% of earnings have been the norm in recent years, and the stock now yields a healthy 4.3%. With this stock, investors are paying for growth and income at a very reasonable price.

-- Ryan Fuhrmann