Down 45%, This Magnificent Dividend Stock Is a Screaming Buy

Investing in beaten-down dividend stocks with a growing payout allows you to gain exposure quality companies at a cheaper multiple. One such TSX dividend stock is Spin Master (TSX: TOY), which currently trades 45% below its all-time highs. Valued at a market cap of $3.35 billion, Spin Master pays shareholders an annual dividend of $0.48 per share, translating to a forward yield of 1.5%. Let’s see why this TSX stock should be a part of your equity watchlist right now.

Is Spin Master stock a good buy right now?

Spin Master is among the largest children’s entertainment companies globally. It creates, designs, manufactures, licenses, and markets toys, entertainment franchises, and digital games. The company also produces movies and children’s shows across platforms. Spin Master’s brand portfolio includes PAW Patrol, Air Hogs, and Rubik’s Cube, among several others.

Its sales touched a record high of $2.04 billion in 2021, rising 30% year over year. However, its revenue fell to $1.9 billion in 2023 and has risen by 9% in the last 12 months to $1.94 billion.

After a solid start to the year, Spin Master reported a 2.1% decline in sales in Q2 of 2024 due to slower consumer spending impacting its in-game purchases within digital games. Toy gross product sales fell 1.4% to $384.7 million. Spin Master also attributed its top-line decline to “shipments moving from Q2 to Q3.”

To offset a challenging macro environment, Spin Master has reduced its retail inventory by 5% year over year. Moreover, a higher mix of lower-priced items has driven the average selling price of its U.S. retail inventory down by 8% year over year.

Analysts now expect Spin Master to increase sales by 26.5% in Q3 and by 68% in Q4 of 2024 due to the integration of the Melissa & Doug brand and elevated spending during the upcoming holiday season.

Is the TSX dividend stock undervalued?

Spin Master began paying shareholders a dividend in July 2022. Until July 2024, the company maintained an annual dividend payout of $0.24 per share. However, it increased its payout 100% this year while reducing balance sheet debt by $65 million in the last six months.

Given its outstanding share count, Spin Master’s annual dividend expense will be roughly $50 million in the next 12 months. Notably, its dividend payout is covered with a trailing 12-month free cash flow of $230.2 million, indicating a payout ratio of just over 20%. Spin Master generates enough cash to target accretive acquisitions, service its interest payments, and raise dividends. In the last year, its interest expenses totaled $33.7 million.

The pullback in Spin Master stock has meant it trades at a reasonable forward price to earnings multiple of 10.8 times. Analysts remain bullish and expect the TSX dividend stock to surge over 30% in the next 12 months.

The Foolish takeaway

Investing in Spin Master solely for its dividend yield may not seem attractive. However, its enticing valuation, strong cash flow, sustainable payout ratio, and double-digit upside potential make it a top investment in October 2024.