In light of a sloweconomy in recent years, it's remarkable
when you can find a company that has delivered strong dividends
and impressive returns.
It's even more impressive when that company is building on a
winning streak of more than four decades, allowing it to carry
the vaunted title of Dividend Aristocrat.
With arecession in full swing in 2008 and 2009, one would think
this innovative furnishings company would have fallen on hard
times -- but it produced positive returns in those two years as
the demand for furniture did not slump along with the economy. A
stream of product improvements and innovations in sleep
technology have helped this company stay relevant and profitable.
And while furniture may not be the sexiest industry in the world,
four decades of rising dividends certainly is.
Founded in 1883,
Leggett & Platt (
has not only stood the test of time -- it has thrived during
turbulent periods. That's allowed it to increase itsdividend for
42 straight years, a feat achieved by only two other members of
the S&P 500.
Thestock yields a market-beating 3.8%. While that might seem a
little small to more yield-hungry investors, consider that if you
reinvest dividends, you'd be sitting on a much larger
yield-on-cost after only a few years. This is part of what makes
Leggett & Platt what we at StreetAuthoritycall a "Retirement
Savings Stock" -- a stock that, because of its above-averageyield
and dependablebusiness model , makes a perfectinvestment for
those who are near or at retirement age.
Diversification has been key to Leggett & Platt's success,
with 20 different business units, more than 18,000
employee-partners and 130 facilities in 18 countries.
The company operates in four distinct segments:
1. Residential furnishings:
Leggett & Platt is an industry leader in bedding accessories,
carpet cushions and mattresssprings .
2. Industrial materials:
The company is also the leading U.S. producer of steel wire and
specializes in shaped wire, coated wire and erosion control
3. Commercial fixtures and components:
Leggett & Platt makes fixtures and point-of-purchase displays
for retail outlets and components of office furnishings.
4. Specialized products:
Leggett & Platt also makes a variety of other products, such
as automotive seatingsupport and comfort systems, quilting and
sewing equipment, and wire-forming equipment used in bedding and
For 2012, Leggett & Platt'searnings per share (
) from continuing operations was $1.46, a record for the
company.Analysts recently raised theirEPS forecasts for 2013, to
between $1.50 and $1.75 per share. That's becausesales are
expected to be $3.75 billion to $3.95 billion, reflectingrevenue
growth of 1% to 6%.
Improved operating margins helped Leggett & Platt post
strong bottom-line results in the fourth quarter of 2012,
withearnings surging more than 45% from the same quarter the
previousyear , to 32 cents per share.
Last year also marked the fifth consecutive year that Leggett
& Plattshares beat the S&P 500, with an average
annualgain of 19.7%, compared with 14.6% for the S&P. Take a
look at its stock's performance since 2009:
Leggett & Platt is in the midst of a three-part strategic
plan announced in late 2007 to divest itself of low-performing
businesses and focus on improving margins and returns, with the
goal of annual top-line growth of 4% to 5%. However, strategic
acquisitions have also been a focus for Leggett & Platt,
which enhanced its industrial materials portfolio last year with
its purchase of Western Pneumatic Tube Holding, a leading
provider of aerospace components.
Compared with its competitors, Leggett & Platt has enjoyed
a higher return onequity (15.5% compared with 11.6%) and net
margins (6.7% versus 4%). Its forwardprice-to-earnings ratio of
about 20 is in line with competitors, but its 3.5% dividend is
more attractive than the industry average of 2.5%.
Risks to consider:
Competitive pressures could make it difficult for Leggett
& Platt to implement new strategies, and intense regional
competition makes it difficult to stand out. The company has done
well, but changes in consumer preferences and budgets can change
at a moment's notice.
Volatility in raw material prices is also a significant risk
that could affect Leggett & Platt's margins. Finally, a
quarter of Leggett & Platt's sales are made overseas, which
exposes the company tocurrency fluctuations and political and
economic risks. Even faced with these risks, however, Leggett
& Platt still looks like a solid choice with its strong
dividend and track record of steady growth in good and bad
Action to take -->
Buy Leggett & Platt at up to $35 a share. With a 3.5%
dividend, solid strategy and strong growth, the stock could climb
to $40 to $45 a share within the next 12 months on the steady
demand for home, office and hotel furnishings.
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