“Safe” and “mid-cap” probably aren’t words investors use together very often, since mid-cap stocks are generally riskier than the stock market as a whole. For instance, if you invested in iShares S&P MidCap 400 Index (NYSE: IJH), an exchange-traded fund (ETF) that tracks the S&P 400 index of medium-size U.S. companies, then you could expect the fund to be about 20% more volatile than the stock market as a whole.

You’d be doing yourself a disservice, though, if you simply wrote off all mid-cap stocks as being more risky, because not all of them are. One of my favorites, a well-known toy company that was founded in 1945 and is most famous for making Barbie fashion dolls, is actually 14% LESS volatile than the market.

I’m referring to the world’s largest toy manufacturer, Mattel Inc. (Nasdaq: MAT), which also sells toys under successful brands like Fisher-Price, Hot Wheels, Tyco and Match Box. The company had overall revenue of $6.3 billion in 2011, and analysts see it rising by a solid 5% in 2012 to more than $6.6 billion.

Since a healthy dividend is one of the main things that can dampen a stock’s volatility, consider Mattel’s payout. The stock has a world-class dividend of $1.24 a share, which is good for a yield of about 4% based on the current share prices. So if you held $10,000 worth of Mattel, or around 300 shares, your annual payout would be $372 — not a bad reward at all for simply holding a stock.

What’s more, Mattel’s payout has a history of steady growth, rising by 11.5% a year for the past five years and by 8.5% a year for the past decade. The latest increase occurred on Jan. 31 of this year, when the company declared a quarterly dividend of $0.31 per share, a 35% gain from the $0.23 a share paid in each of the prior four quarters.

Going forward, analysts project annual dividend growth will match the average rate of 8.5% during the past 10 years, meaning shareholders could see their payouts rise to around $1.85 a share by 2016. A couple factors make this feasible, one being ample free cash flow. At the end of 2011, this figure stood at $474 million, a 21% gain from $391 million during the prior year. In the first quarter of 2012, Mattel reported $174 million of free cash flow, suggesting it could finish the year with almost $700 million ($174 million X 4 quarters) for a potential gain of 47% from 2011. And this estimate could be conservative because the first quarter is typically the slowest for Mattel, as it can be for many retailers the first few months after the holidays.

The other reason I think Mattel can keep raising dividends: It’s a strong bet to keep growing profits. The company has been doing a very solid job of this, increasing the bottom line by 7% annually for the past decade. I think it’s likely to maintain that growth rate because of its willingness to pursue new opportunities in emerging markets, where middle class populations with disposable income are on the rise. Otherwise, the company would be in a losing battle to wring all it can out of the United States and western European markets, which are poised for slower economic expansion in the long-term.

Currently, about half of Mattel’s revenue comes from overseas. Of this portion, there’s about a 50-50 split between Europe and emerging markets (mainly Latin America and the Asia/Pacific region). In the long-term, analysts project sales will only rise by about 2% a year in the United States and Europe, but by double-digits in emerging markets, especially Latin America and the Asia/Pacific region, where the annual growth rate is about 13%.

Globally, sales should be enhanced by the October 24, 2011 purchase of HIT Entertainment for $680 million. The acquisition, which adds the popular brands Thomas & Friends, Barney and Bob the Builder to Mattel’s lineup, is expected to increase annual sales by $180 million. It should also become profitable very quickly, probably by 2013, according to analysts.

Risks to Consider: Although Mattel’s overseas operations help to hedge against fluctuations in the domestic economy, they also expose the company to foreign currency risk. If exchange rates become unfavorable in a key region, then it could hurt the company’s bottom line.. This risk will increase as the proportion of overseas revenue progressively increases.

Action to Take –> Be aware that not all mid-cap stocks are riskier than the market, even though as a group they’re typically more volatile. Indeed, plenty of mid-caps behave more like safe, reliable blue chips, and Mattel is one of them. If you’re a more conservative income-oriented investor, consider investing in Mattel for the top-notch dividend and lower share price volatility. Although shares are up 17% year-to-date, they’re still about 7% below the one-year high, so now is a fine time to buy.

The stock has delivered 33% annual gains a year for the past three years, but I wouldn’t expect this sort of growth going forward. Rather, I see Mattel possibly rising from around $32 a share now to about $44, assuming earnings climb to $3.13 a share as projected and investors continue to pay about 14 times earnings for the stock, as they have historically ($3.13 X 14 = $43.82). If this were to occur in three years, you’d be looking at gains of 11% a year. Over five years, this would translate to gains of about 7% a year. It’s not thrilling, but you will certainly sleep better at night.