Prices of Mattel Inc toys like Barbie dolls and Hot Wheels cars have gone up as the company tries to compensate for increasing costs for materials like resin and rising wages in China.

The world's largest toy company, which sees input, labor and transportation costs rising in 2012, said on Tuesday that it had raised prices at a mid-single-digit rate on January 1 with the goal of keeping gross margins at around 50 percent.

The news came on the same day Mattel reported a higher-than-expected quarterly profit, sending its shares to their highest level since 1998.

Nobody likes to take prices up, said Chief Executive Officer Bryan Stockton. Having said that, we're all seeing the same kind of commodity increases, whether it's in transportation costs, labor etc. So I think generally there is an understanding of the situation across the board.

Stockton replaced long-time CEO Robert Eckert at the end of last year.

Mattel also set a first-quarter cash dividend of 31 cents a share, reflecting an annual payout of $1.24. That represents a 35 percent increase from last year.

While tight cost controls did boost the company's profit in the fourth quarter, a stronger dollar and weakness in its Fisher-Price business hurt revenue in the period covering the Christmas selling season.

This year will be another when consumers and retailers will be a little cautious, Stockton said on Tuesday.

The news came just weeks after smaller rival Hasbro Inc forecast weak sales for the fourth quarter, citing underwhelming post-Thanksgiving demand in the United States and Canada. The company plans to report results on February 6.

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International sales have been much higher for both Mattel and Hasbro, analysts have said. A stronger dollar, however, brings down the value of exported goods by U.S. companies.

Mattel, which derives roughly half its business from international markets, said fourth-quarter net sales rose 1 percent to $2.15 billion. Analysts on average expected $2.22 billion, according to Thomson Reuters I/B/E/S.

Mattel's net income rose to $370.6 million, or $1.07 a share, from $325.2 million, or 89 cents a share, a year earlier.

Analysts were looking for a profit of $1.01 a share.

While Mattel shares are likely to react well to the fourth-quarter bottom-line performance and dividend hike, we remain concerned that estimates for 2012 remain too high, MKM Partners analyst Eric Handler said, stressing that cost savings drove the industry leader's performance in the fourth quarter.

Mattel stock was up 5.1 percent at $31.03 after rising as high as $31.49 earlier in the session.

Despite the sales miss, Mattel clearly exhibited a much better performance than its rival in the holiday season and even gained share from Hasbro, NPD data showed.

U.S. retail category trends remain most favorable for Mattel, Wells Fargo analyst Tim Conder has said, adding that demand was strong for Barbie dolls, Monster High dolls, WWE action figures, Hot Wheels cars and Thomas & Friends toys even as the Fisher-Price business continued to struggle.

Barbie registered its second consecutive double-digit sales rise in the quarter, but growth slowed to 4 percent internationally following three consecutive quarters with increases of about 20 percent, Handler said.

Analysts across the board raised concerns about Fisher- Price, which accounts for 30 percent of Mattel's gross sales. The business suffered from the loss of the Sesame Street license, and its sales fell 10 percent, while Handler and other analysts were looking for a 1 percent rise.

(Reporting by Dhanya Skariachan; Editing by Lisa Von Ahn and Maureen Bavdek)

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