Leggett & Platt: A Dividend Machine For 2019

Time：2019-04-29 09:52:16    Share：

Summary

How often does one stock go down or up based on news from a stock in the same industry. Sleep Number's (NASDAQ:SNBR) stock is under pressure (you can read the article?here). I was hoping Leggett & Platt (NYSE:LEG) would go down in sympathy. Here is why.

LEG meets all Dividend Machine Fundamentals.?

?Dividend yield is greater than 2-year U.S. Treasury.?

?Dividend growth beats inflation.?

?History suggests the dividend is safe in difficult times.?

?Valuation is acceptable.

Leggett & Platt is a very diversified company that supplies among many other items, bedding. I was hoping Leggett & Platt might have a similar downturn as Sleep Number, down $7 or 15% as of this writing. But LEG is holding up.

I like Leggett & Platt, symbol LEG; three portfolios hold LEG,?2011,?2013?and?2014. Click on the year to read the original post. It's not an exciting stock. Not a stock with a lot of call option excitement. But as you can see, with the history in this blog that it is a steady source of income for we income investors. If I were constructing another income portfolio, I would add LEG to it.

Fundamentals

LEG meets most of the hurdles I use to pick an income stock. It pays a dividend that is much bigger than I can get from a 2-year U.S. Treasury. To take the risk embedded in any stock, you have to beat the safest investment such as a U.S. Treasury note or bond. LEG has earnings that far exceed the dividend paid out making that dividend safer. Dividend increases, and D/E (debt to equity ratio) are all within the range I look for.

Dividend Machine

To be a "Dividend Machine," a stock has to have a history of increasing the dividend over time. Inflation, not the CPI number or the one used by the "Fed" but the inflation I measure, is about 3.8%. I would like to see my income go up by 3.8%. I can stomach ups and downs in the value of the investment if it is basically safe and continues to raise my pay. You can see in the table under FUNDAMENTALS, the last three-year dividend increases have averaged over 6%. Take a look at the longer-term dividend history and you can see even during the very difficult period of 2008/2009, LEG delivered safe and increasing income.

Value Investment

LEG is trading well above my basis of $28 and change. Today LEG is trading at $43.35. Is that too expensive? Looking at the historical P/E of LEG, I think it is not too expensive. LEG's current P/E (price earnings ratio) is right around 19. While not cheap, this is a very reasonable valuation particularly when you look at the P/E history.

While the vast diversification of this company may be a good thing or a bad thing, I can only go on past performance and the data available. One part of LEG's management I like is the stated goal of increasing total shareholder value through growth as well as returning money to shareholders through dividends and stock buybacks. For an income investor, those are very nice goals. April options expire today and I will have some money to invest. I am going to add LEG and hope the bed bugs don't bite.