Up to date on February thirteenth, 2023 by Nikolaos Sismanis

Yearly, we assessment all the Dividend Aristocrats, a bunch of 68 firms within the S&P 500 Index with 25+ consecutive years of dividend will increase. We really feel every Dividend Aristocrat deserves a person assessment annually as a result of the Dividend Aristocrats are very distinctive inside the broader inventory market.

In an effort to elevate dividends for at the very least 25 years in a row, an organization should have a persistently worthwhile enterprise mannequin that may generate optimistic earnings and money circulate, even throughout financial downturns. That is no straightforward job, as recessions are certain to occur from time to time, and new aggressive and technological threats can seem. Given this, comparatively few firms have the energy to proceed elevating dividends yearly, whatever the financial local weather.

With this in thoughts, we created an inventory of all 68 Dividend Aristocrats, together with essential monetary metrics comparable to dividend yields and price-to-earnings ratios. You possibly can obtain your copy of the Dividend Aristocrats record by clicking on the hyperlink under:

 

Leggett & Platt (LEG) won’t be a family title, however it’s doubtless that hundreds of thousands of customers are available contact with one (or extra) of the corporate’s merchandise day-after-day.

Leggett & Platt has additionally elevated its dividend, which at present yields 5.2%, for 51 years in a row. Which means the corporate can be on the ultra-exclusive Dividend Kings record, which requires 50 consecutive years of dividend will increase.

Leggett & Platt has a robust enterprise mannequin with sturdy aggressive benefits, making it a pretty dividend progress inventory. Furthermore, the affordable inventory valuation improves our anticipated price of return for this Dividend Aristocrat.

Enterprise Overview

Leggett & Platt is a diversified manufacturing firm. It was based all the way in which again in 1883 when an inventor named J.P. Leggett created a bedspring that was superior to the present merchandise at the moment.

Right this moment, Leggett & Platt designs and manufactures a variety of merchandise, together with bedding parts, bedding trade equipment, metal wire, adjustable beds, carpet cushioning, and automobile seat help techniques. It designs and manufactures merchandise discovered in lots of properties and cars. The corporate has a diversified enterprise, each when it comes to product combine and geographic break up.

Supply: Investor Presentation

Leggett reported fourth-quarter earnings on February sixth, 2023, with outcomes negatively impacted by a slightly robust macro setting. Whole income got here to $1.2 billion, down 10% year-over-year, lacking estimates by about $40 million. Earnings-per-share got here to 39 cents, which was down from 77 cents in This autumn-2021, additionally lacking estimates by 9 cents.

The corporate famous natural gross sales had been down 12%, as quantity was down 12% from softness in residential finish markets, partially offset by progress within the Automotive, Aerospace, and Hydraulic Cylinders companies.

A detrimental forex impression of two% would additionally drag outcomes decrease, however it was offset by uncooked material-related promoting value will increase of two.0%.

Supply: Investor Presentation

Second-quarter EBIT was $91 million, down $61 million or 40% from This autumn-2021, as decrease gross sales and better curiosity bills resulted in compression in margins.

The corporate launched its steering for fiscal 2023, anticipating gross sales of $4.8 billion to $5.2 billion and earnings-per-share of $1.50 to $1.90.

Development Prospects

Development at Leggett & Platt will depend on a multi-faceted method, together with acquisitions, share repurchases, and efficiencies achieved by means of price controls. Leggett & Platt has a long-held coverage of buying smaller firms to increase its market dominance in current classes or to department out into new areas.

An instance of this bolt-on technique was the $1.25 billion buy of Elite Consolation Options. Elite Consolation Options’ foam bedding operations complement Leggett & Platt’s current mattress capabilities and infrastructure. In 2021, LEG made three small acquisitions that expanded its capabilities in Worldwide Bedding, Aerospace, and Work Furnishings.

One other key part of Leggett & Platt’s earnings progress technique is price controls. The corporate constantly evaluates its portfolio to make sure it’s investing within the highest-growth alternatives, and it’s not afraid to divest low-margin companies with poor anticipated progress.

For low-growth or low-margin companies, it both improves efficiency or exits the class. The corporate additionally drives price reductions throughout the enterprise, together with in promoting, normal, administrative bills, and distribution prices.

Leggett & Platt has been in a position to attain its long-term progress targets thanks largely to its vital aggressive benefits within the core industries during which it operates.

Nonetheless, progress has moved in suits and begins at instances. From 2006 by means of 2013, successfully no progress in earnings-per-share occurred. Then from 2013 to 2016, earnings-per-share jumped 70%. Extra just lately, income and earnings-per-share declined considerably in 2020 because of the coronavirus pandemic.

However, it’s value noting that earnings hit a brand new earnings-per-share report in fiscal 2021, which demonstrated the corporate’s potential to bounce again. Total, we forecast 4% annual EPS progress over the following 5 years.

Aggressive Benefits & Recession Efficiency

Leggett & Platt has established a large financial “moat,” which means it has a number of operational benefits which maintain opponents at bay. First, the corporate enjoys a management place within the trade, which permits for scale.

Leggett & Platt additionally advantages from working in a fragmented trade, which makes it simpler to determine a dominant place. In most of its product markets, there are few, or no, giant opponents. And when a smaller competitor does obtain vital market share, Leggett & Platt can merely purchase them, because it did with Elite Consolation Options.

Leggett & Platt additionally has an in depth patent portfolio, which is essential in conserving an edge on the competitors. The corporate has spectacular mental property, consisting of roughly 1,500 patents issued and almost 1,000 registered logos.

Collectively, these aggressive benefits assist Leggett & Platt keep wholesome margins and constant profitability. That stated, the corporate didn’t carry out properly through the Nice Recession, given its publicity to discretionary finish markets, comparable to furnishings and auto manufacturing.

Earnings-per-share through the Nice Recession are proven under:

• 2006 earnings-per-share of $1.57
• 2007 earnings-per-share of $0.28 (-82% decline)
• 2008 earnings-per-share of $0.73 (161% improve)
• 2009 earnings-per-share of $0.74 (1% improve)
• 2010 earnings-per-share of $1.15 (55% improve)

This earnings volatility mustn’t come as a shock. As primarily a mattress and furnishings merchandise producer, it depends on a wholesome housing marketplace for progress. The housing market collapsed through the Nice Recession, which prompted a major decline in earnings-per-share in 2007.

Leggett & Platt additionally relies on client confidence, as roughly two-thirds of furnishings purchases in the USA are replacements of current merchandise. When the financial system enters a downturn, client confidence usually declines.

It additionally took a number of years for Leggett & Platt to get well from the consequences of the Nice Recession. Earnings continued to rise after 2007, however earnings-per-share didn’t exceed 2006 ranges till 2012. The corporate noticed one other troublesome 12 months in 2020 because of the coronavirus pandemic. This demonstrates that Leggett & Platt is just not a recession-resistant enterprise.

Fortuitously, the corporate maintains a robust monetary place, which permits it to stay worthwhile and proceed growing dividends annually, even throughout recessions. Leggett & Platt has a wholesome stability sheet. In 2022, it was in a position to lengthen its debt maturity profile by issuing 30-year notes at an rate of interest of three.5%.

Valuation & Anticipated Returns

As beforehand talked about, Leggett has a powerful dividend historical past. The corporate has elevated its dividend for half a century. Leggett & Platt traditionally generated loads of money circulate to distribute vital money to buyers and spend money on progress initiatives.

It additionally has a strong present dividend yield of 5.2%. That is greater than triple the yield of the broad S&P 500 Index.

We’re utilizing an earnings energy of $2.34 for 2023, regardless of administration’s decrease steering attributable to any short-term challenges. Primarily based on a current inventory value of $34, shares are presently buying and selling at a price-to-earnings ratio of 14.2.

Whereas the corporate has been a gradual grower over a few years, with an extended dividend historical past, we imagine one thing nearer to fifteen instances earnings is truthful worth for the inventory. As such, this might point out the potential for a small valuation tailwind over the intermediate time period of about 1.2% yearly.

If you happen to mix the 4% anticipated EPS progress price, 5.2% beginning dividend yield, and a 1.2% potential valuation tailwind, you come to an anticipated annualized whole return of 9.5% over the following 5 years. That’s adequate for a purchase ranking, given the corporate’s exemplary dividend longevity.

Remaining Ideas

Leggett & Platt has utilized a confirmed progress technique that has been profitable for greater than 130 years. The corporate is very worthwhile and has a really robust 5.2% dividend yield, which has grown for 51 years in a row.

Leggett inventory is enticing for buyers concerned with secure dividend progress shares with above-market yields, and we price it a purchase. Nevertheless, buyers ought to needless to say Leggett & Platt’s enterprise is topic to financial downturns, given its finish markets are considerably discretionary.

Moreover, the next Positive Dividend databases comprise probably the most dependable dividend growers in our funding universe:

If you happen to’re in search of shares with distinctive dividend traits, take into account the next Positive Dividend databases:

The most important home inventory market indices are one other strong useful resource for locating funding concepts. Positive Dividend compiles the next inventory market databases and updates them month-to-month: