The "real" answer was around about 20-odd years ago, it was an "ALPS" printer. Thermal printer using special coloured wax. Cost a fortune back then, no longer in production as far as I can see, a good second hand one these days would probaly cost an arm and a leg, maybe a kidney as well if you wanted the right colour wax sticks to feed it with.
I recall seeing them in a shop window and thinking that they seemed a good idea, but back then a printer was a luxury (I was running an Amstrad PCW 8512 at the time), and they were right at the top end of the price range. Cheaper ways of getting coloured ink onto paper appeared and took over the market.
Printing outlines onto sticky back plastic works, then using the result as a stencil after placing it where wanted. Cutting round the letters in situ before painting the letters in is a PITA, the smaller, the worse, but you do get the chance to put any colour letter on any colour background.