There aren't many companies that can say they've paid dividends
every year for the past four decades. Fewer still are those that
have raised their dividends in every single one of those years.
Of that elite group, I know of only one company that has hiked its
payouts at a robust 14% annual growth rate (essentially doubling
dividends every five years on average).
Amazingly, this company has treated its owners to a pay raise
every year since 1971. And as you can see from the table below,
we're not talking about small token increases -- dividends have
soared 10-fold since 1990.
So what does this income machine do? Actually, it is one of the
most boring industrial conglomerates you'll find. I'm talking about
Leggett & Platt Inc. (NYSE:
, which supplies carpet underlay, office furniture, retail store
fixtures, automotive seating and the underlying framework for beds,
couches and recliners.
No one will mistake any of these product lines as exciting. If the
stock market were middle school, Leggett & Platt might be the
socially awkward kid sitting alone in the cafeteria, detached from
cooler cliques like cloud computing. Fortunately, as Warren Buffett
points out, the market is only a popularity contest in the
short-term -- in the end, it's a "weighing machine." ["
What These 4 Stocks Have in Common With Buffett…
Leggett & Platt has heavy competitive advantages. In fact,
after 127 years in business, the company practically owns the
industries in which it competes -- with dominantmarket share and
zero large-scale competitors.
Its products aren't flashy, but they can be found in nearly every
home, office and car in the country. Every year, powerful customers
, Ashley Furniture and
Home Depot (NYSE:
chip in about $3.3 billion in annual sales.
I could also talk about the firm'svertical integration , overseas
expansion or even the fact that managerial compensation is tied to
shareholder returns -- something that never hurts a
company'sperformance . But the key to its recent (and future)
success lies in a major strategic overhaul.
In November 2007, after a difficult stretch, management outlined
four distinct goals:
1. Divest underperforming business units.
2. Improveprofit margins on the remaining core.
3. Return more excess cash to shareholders.
4. Generate steady 5% sales growth utilizing product development
and expansion into new markets.
Of course anyone can lay out a game-plan, but execution is key.
Since that time, the company has unloaded seven weak business
segments (pocketing $433 million) and expanded gross margins to
their highest level since 2000. Leggett & Platt has also
generated more than $1.2 billion in operatingcash flow , raised its
quarterly dividends by 50% and repurchased 31 millionshares
(one-fifth of the outstanding stock).
As for the end goal -- delivering total returns in the top
one-third of the S&P 500 -- the company has actually overshot
the mark. Through the end of the company's most recent quarter (Q3
2010), shareholders have enjoyed a total return (appreciation +
dividends) of 37% -- beating 89% of stocks in the S&P 500.
Gone are the days of sacrificing efficiency and focus in the name
of maintaining 15% revenue growth. Today, Leggett & Platt is
happy to grow at one-third that pace. The company is far more
disciplined with its checkbook: it has cut back on frivolous
acquisitions and reserved capital expenditures strictly for its
fastest-growing business units.
In fact, the company is spending about half of what it did a few
years ago, which leaves millions more on the table for
shareholders. What's more, shareholders are getting a larger share
of the cash -- the targetpayout ratio has been bumped from 33% to
60%. All of this means one thing: thedividend increase recently
announced won't be the last.
Action to Take -->
Before 2007, Leggett & Platt suffered through years of tepid
results and sluggish stock prices. But when aturnaround is done
right, as it was with this company, it can be a powerful
performance booster for an investor's portfolio. That's why I
spend most of my time looking for similar catalysts for readers of
And here's what's really impressive: the company has managed all of
this in the teeth of one of the worst recessions on record.
Understandably, demand for mattress box springs and office chairs
hasn't been quite up topar lately.
I'm confident the company (and itsshares ) can accomplish bigger
and better results in 2011 -- aside from the loftyyield of almost
-- Nathan Slaughter
Disclosure: Neither Nathan Slaughter nor StreetAuthority, LLC
hold positions in any securities mentioned in this article.
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