Leggett & Platt: A Dividend At Risk

| About: Leggett & (LEG)

Leggett & Platt (NYSE:LEG) is among the top industrial dividends that we have been following and one about which we have become concerned in recent months.

The company produces half of its sales from home furnishings, a hard hit market brought about by the current state of the economy. The other major division of the company's sales are from retail store fixtures, industrial products and automotive seats, so some investors like to play the company as a way of benefiting from increased corporate spending. Barrons's noted these facts over the weekend and rang our opinions for the dangers beleaguering Leggett & Platt's dividend.

We ought note that Leggett & Platt has actually been a dependable dividend raiser over the past few years and its five-year rate of growth of 12% is superlative.

That said, sales have been slowing and profit increases are all but extinct. The debt burden and free cash flow rate are not separated by much so the debt isn't too concerning, but Leggett & Platt's disbursement ratio is an impressive 417%. Plus, the current yield of 5.5% is nearly two points above the five-year average. We prospect that pay out ratio as unsustainable unless earnings increase dramatically.

Barron's projects Leggett & Platt should earn 64 cents a share in 2009 and 99 cents in 2010. That's impressive earnings growth, but not adequate to substantiate an annual payout of $1.04 a share. Barron's states critics think Leggett & Platt requires to earn $2 a share to financially support such a payout and that asset gross revenue have faded Leggett & Platt's revenue model while most of its free cash flow goes to paying the dividend, meaning not much is left for acquisitions that could be used to boost earnings and market share.

The stock is expensive at 19 times earnings and we agree with the Barron's thesis that Leggett & Platt's dividend could be threatened.

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