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Leggett & Platt (NYSE:LEG) is a diversified company that manufactures:

  • Components for bedding & residential furniture
  • Carpet underlay
  • Components for office furniture
  • Drawn steel wire
  • Auto seat support and lumbar systems
  • Bedding industry machinery

The longer term record has 2 segments. From the early 1980's, the stock increased to the high 20's by 1998. Since then it's been on a bumpy road, mostly sideways in the 20's. However, compared to other big name companies, such as Microsoft (MSFT - Dow stock), that performance is not so bad!

While the businesses sound dull, LEG can make for a profitable investment. It was founded in 1883 and is an S&P 500 Dividend Aristocrat with 39 consecutive years of annual dividend increases. But their products make it difficult for ordinary investors to understand. LEG has grown although the road has been bumpy, especially during this decade. Leggett had a very bad year in 2007 when EPS plunged 74% to 33¢. In November 2007, the company adopted major changes to corporate strategy (just before entering a nasty recession):

  1. divested low performing businesses
  2. returned more cash to investors
  3. improved EBIT margins
  4. began to carefully to grow sales 4-5% annually

In addition, Total Shareholder Return (TSR) has become their driving metric. TSR is the capital gain (loss) during the period plus the yield from dividends divided by the beginning stock price, an excellent measure which more companies should discuss! Redefined goals in 2007 have already brought positive results.

...... ......LEG ....S&P 500

2008___(8)%___(37%)

2009___43%____26%

In 2010 YTD their TSR is 8%, not bad in a sluggish year!

The performance in 2008 was from a substantial dividend increase to $1 and stock buybacks. In 2009, improvement came from higher EBIT margins (from 5.7% to 7.5%). In Q1 2010, sales rose 14% to $816 million and EBIT margins increased to 8.9%. Higher sales and improved margins are interwoven for their success, incremental sales have 30% margins.

Their guidance for 2010 is encouraging. Selected highlights (issued 4/21) are:

  • EPS 95¢ - $1.30 (analysts' average is $1.23)
  • Dividends $1.06
  • Sales $3.1-3.4 million
  • Share repurchase 3-6 million

In 2011, the analysts' average estimate for EPS is $1.62. LEG said sales can grow to $3½-4 billion which would bring EBIT margins of 10-13% and EPS over $1.40.

This is a good stock, but only for the believers. In the last 2 years they didn't cover the dividends and this year could be tight. But their goals should bring higher earnings necessary for higher dividends allowing them to remain a Dividend Aristocrat. Their yield is almost 5%, implying a higher level of risk. Courageous investors should be rewarded starting with an easy to take yield.

Disclosure: No positions

Source: Leggett & Platt: A Dividend Aristocrat for the Believers