Leggett & Platt, Inc. Dividend Stock Analysis

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Linked here is a detailed quantitative analysis of Leggett & Platt, Inc. (LEG). Below are some highlights from the above linked analysis:

Company Description: Leggett & Platt Inc. makes a broad line of bedding and furniture components and other home, office, and commercial furnishings, as well as products for non-furnishings markets.

Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:

1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number

LEG is trading at a discount to 1.) and 3.) above. Since LEG's tangible book value is not meaningful, a Graham number can not be calculated. When also considering the NPV MMA Differential, the stock is trading at a 43.1% discount to its calculated fair value of $33.69. LEG earned a Star in this section since it is trading at a fair value.

Dividend Analytical Data: In this section, there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:

1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%

LEG earned one Star in this section for 3.) above. LEG earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1939 and has increased its dividend payments for 52 consecutive years.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:

1. NPV MMA Diff.
2. Years to > MMA

LEG earned a Star in this section for its NPV MMA Diff. of $3,302 This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as LEG has. The stock's current yield of 9.61% exceeds the 3.75% estimated 20-year average MMA rate.

Peers: The company's peer group includes: Hooker Furniture Corp. (HOFT) with a 4.0% yield, Flexsteel Industries Inc. (FLXS) with a 1.6% yield, and Ethan Allen Interiors Inc. (ETD) with a 4.8% yield.

Conclusion: LEG earned one Star in the Fair Value section, earned one Star in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of three Stars. This quantitatively ranks LEG as a 3-Star Hold stock.

Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $37.38 before LEG's NPV MMA Differential decreased to the $500 minimum that I look for in a stock with 52 years of consecutive dividend increases. At that price, the stock would yield 4.9%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is -7.3%. This dividend growth rate is lower than the 1.1% used in this analysis, thus providing a margin of safety. LEG has a risk rating of 2.25 which classifies it as a Medium risk stock.

In spite of being a highly cyclical company, LEG has a long history of profitability and generating strong free cash flows. LEG's effective cost management will help the company to continue increasing its operating cash flow. LEG's free cash flow payout of 65% (down from 70%) is slightly above my maximum, and its debt to total capital of 62% (up from 58%) is above my maximum. The stock is currently trading well below my calculated fair value of $33.69. I have recently added to my position.

More By This Author:

General Dynamics Dividend Stock Analysis
Becton, Dickinson And Co. Dividend Stock Analysis
Genuine Parts Company Dividend Stock Analysis

Disclosure: At the time of this writing, I was long in LEG (0.7% of my Dividend Growth Portfolio). 

Disclaimer: The material presented here is for informational purposes only. The ...

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