Thursday, December 5, 2013
New Purchase - LEG
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!
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.