I'm pleased to announce Leggett & Platt, Inc (LEG) as the newest addition to my income portfolio. These 60 shares came with a 4.1% yield and will boost my forward income by $72.00 per year. I was hoping to acquire shares of this company at $29 or below, but felt I ought to get in now since it's close enough and goes ex next week. If you back out the $.30 dividend, I'm effectively paying $28.93 per share.
I lack holdings in the consumer discretionary sector, Leggett & Platt will help fill that void and increase my portfolio diversification. Actually LEG is pretty interesting in that regard. Technically it's classified as consumer disc., but is almost an industrial stock. LEG is the parent company for a number of businesses (in a similar vein as say ITW) but is most famous for manufacturing bed springs, bed frames, and other home furnishings. I happened to have bought a new bed set a few months back. The metal frame was clearly labeled as a LEG product and the springs (I bought a Simmons) are likely to be a LEG product as well. Beyond the residential furnishing segment (which include other offerings such as carpet pads), Leggett's three other segments are Industrial Materials, Commercial Fixturing and Components, and Specialized Products. I don't feel the need to list each business, but it is clear this company has hands in a wide variety of industries and is well diversified. Quite a lot going on here and there should be plenty room for future acquisitions and portfolio optimization.
According to analysts, LEG is set to grow long term EPS by 15% per year. That would be a nice growth story, but unfortunately I find analysts expectations are often too optimistic. I am not counting on growth that high, that's for sure! LEG has many qualities I look for in a long term holding to include a 42 year streak of dividend growth, reasonable debt, robust growth opportunities, and a solid valuation. I spent some time listening to conference calls and am comfortable with the management team as well (dividend raises are ingrained in the culture). It's also a mid cap stock which is a breath of fresh air from all the huge companies I tend to purchase.
The down side with LEG is that the dividend growth tends to be low and the payout ratio is a bit high. While I think dividend growth will eventually pick up as EPS improves, I'm content collecting a 4% yield growing at the rate of inflation for now. Actually that sounds just fine!
Symbol: LEG
Core Position: No
Speculative Position: No
Expectations: Steady income; 3% annual dividend growth
Automatic Sell: Frozen dividend; dividend cut
Consider Selling: Business fundamentally changes, management becomes untrustworthy, fundamentals deteriorate, wildly over valued stock price, or position fails to meet expectations.
I like the purchase CI, and actually made a fairly similar one about a month ago in my investment club. I think LEG's slow dividend growth is simply a factor of them streamlining their business and shedding the extra waste. Once EPS catches up again they should able to start accelerating that dividend growth going forward.
ReplyDeleteI think it's a reflection of what happens to a business when it goes through a rough patch, but is 110% committed to rewarding loyal shareholders with larger dividends each. The past five years or so has been about streamlining operations and focusing on margin improvement. It now appears poised for renewed growth, but I'm not willing to bet the farm on it. Pretty nice yield too.
DeleteThis company has been around for a very long time. I have not followed the company for years. They make lockers or did at one time. If a company pays a decent dividend and increases it annually thats a sign of strength of the business. I worked for a guy that used to be a manager at a division of Leggett and Platt
DeleteI've seen the name many times but never looked it up. A 4% dividend yield combined with EPS grow of 10% per year over the next 5 years (5% less than analysts expectations) would be amazing.
ReplyDeleteI agree, but I happen to think LEG might improve dividend coverage if EPS ends up growing like analysts predict. Dividend growth will likely lag EPS growth for the foreseeable future (2-3 years) since that would be the prudent course of action.
DeleteNice purchase, I hope you se an accelerated dividend growth in the future. Also liked the way how you labeled your selling options, as it's not always about holding :)
ReplyDeleteThanks
DeleteI started including sell conditions a few months ago for future reference. Earlier this year I had problems figuring out what to do when INTC froze its dividend. I think that by having a clear plan of action sell decisions become easier and I won't second guess myself. Certain factors such over valuation or untrustworthy management is hard to define so I'll have to tackle that on a case by case basis.
Slow and steady... I like it! The payout ratio is little on the higher side, but nothing alarming.
ReplyDeleteI would add boring in there too. Perfect!
DeleteLike LEG - I have 60 or so shares myself but bought mostly in 2011 and earlier at an average price of $25. Love that it is just a boring reliable company! Feel like I am going to own these 60 shares until I am 50 (unless it gets overvalued).
ReplyDeleteIf I remember correctly, the payout ratio was over 100% back then. You have been rewarded for seeing past it. Nice work going grabbing shares back when it yielded 5%!
DeleteI bought 400 shares on Thursday. I love getting dividends in January, you have 16 months until the tax bill comes due.
ReplyDeleteNice! I don't have the means to make purchases that large, but I try to buy in chunks of $1250 or greater to minimize commissions. Best wishes!
DeleteWonderful to see you chugging along, CI. Good progress. I hope to join you in a couple of years or so when I have these rentals paid off and can then devote my new monies (or rental income) to dividend growth companies. I take next month to catch up on prepaying our fall trip to England/Ireland, then in Feb I start paying off house #2. Keep up the great work!
ReplyDeleteAwesome, I'll have to stop by your site in a just minute. Have fun on your vacation to the UK/Ireland. I have never been there, but hope to do so one day!
DeleteI need to come back to LEG and look at them. I owned them years ago but sold because they werent growing as fast as I wanted. Wonder how they turned things around.
ReplyDeleteImagine a holding company for a number of businesses that for a time was acquiring anything in sight in order to grow. The business stagnates so a new CEO is hired with a plan to streamline the portfolio. Businesses with low margins or poor growth prospects are sold. Stock is bought on the open market and retired with the proceeds from those under performing businesses. New acquisitions are still on the table, but only if the margin/growth profile fits the new theme. While the business reorganizes itself, it continues to increase the dividend every year because this particular business has been doing so for many decades. In the process the payout ratio becomes really high, but improves as the transformation takes place.
DeleteThat's my take on what LEG has done. Pretty similar to Illinois Tool Works.
Take care!
Nice grab! I looked at LEG about a year and a half to two years ago, when it seemed like revenue was stagnating. Looks like they have turned that around? Could be a good bet - they definitely seem to be dedicated to returning cash to shareholders.
ReplyDeleteBTW, I linked to your blog in one of my recent posts. I hope you don't mind. I did sell SNH and spread the funds around to a few different REITs. Should have sold sooner to book more cap gains, as it came down over the last couple weeks. I am torn sometimes in those situations because I always remember the Buffett mantra of "Do nothing." Ah well, live and learn.
You can link my blog, not a problem. Well we never know the best time to buy or sell, all we can do is make choices that fit our strategies. It makes sense to spread around the proceeds for diversification purposes. That is exactly what I'm doing with my portfolio as a whole. I am always a little bit saddened when I have to sell something (means I had a poor pick), but usually it's for the best. Cheers!
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